What factor determines SAAS Public Valuations?
I was working on a valuation presentation and thought I would share a few of the charts that I put together. If you do a google search on what determines SaaS valuation, you would see a lot of commentary on sales growth. The companies here were selected from the Bessemer Venture Partners cloud index. First, I looked at how the group has traded over the last four years. In early 2016, it looked as if the bottom dropped out, but the group made a solid recovery over the summer.
The snapshot here in mid October 2016 gives a good overview. The index median Enterprise Value to Sales is 5.8x, just below the 3 year average.
It does look like there is a correlation between sales growth and EV to Sales Multiple. Let's look at a few more charts. Below is a bar chart with companies grouped by sales growth (note: they aren't grouped into equal baskets). The bar chart below shows that high growth SaaS businesses are valued at a higher EV/Sales multiple.
With the scatter plot, we have an R-squared of 0.57, which implies a fairly strong relationship between sales growth and EV/Sales multiple.