Clouded Judgement: Are Software Companies Over or Undervalued?
This article analyzes whether SaaS companies are fairly valued by examining revenue multiples, growth rates, interest rates, and FCF margins in historical context. The author concludes that while raw revenue multiples appear 25% below long-term averages, growth-adjusted multiples are 50% above historical norms, and when factoring in improved FCF margins and elevated interest rates, current valuations are actually expensive relative to fundamentals.
Metrics in this report
4.0percent
Current as of September 2023
2.3percent
average
Long-term average during pre-COVID period
40months
median
Gross margin adjusted CAC payback for public SaaS companies
12percent
median
Median NTM FCF margin for SaaS software index, current
6percent
average
Long-term pre-COVID average FCF margin
20percent
minimum
High-quality SaaS companies (Crowdstrike, Zscaler, Snowflake)
16percent
median
Public SaaS software index
75percent
median
Public SaaS software index
0.81x
median
EV/NTM Revenue/NTM Growth, March 2023
0.29x
average
Long-term pre-COVID average, EV/NTM Revenue/NTM Growth
115percent
median
Public SaaS software index
-18percent
median
Median NTM operating margin for SaaS software index
27percent
median
Public SaaS software index
15percent
median
Median NTM growth rate for SaaS software index
27percent
average
Long-term median NTM growth rate for SaaS software index
6.0x
median
Broad SaaS software index, March 2023
7.8x
average
Long-term pre-COVID SaaS average
11.1x
median
High-growth SaaS companies (>30% NTM growth)
8.9x
median
Mid-growth SaaS companies (15-30% NTM growth)
3.8x
median
Low-growth SaaS companies (<15% NTM growth)
43percent
median
Public SaaS software index