Software stocks have significantly underperformed at the end of the year. The E-Spring B2B SaaS Index was no exception, falling by around 10% in terms of EV/Sales 2021 multiples during the fourth quarter.
In contrast to previous quarters, the fourth quarter marked a break in the software industry, both in terms of market capitalisation and valuation multiples. Despite an 8% recovery in October, shareholders suffered a 17% drop in November, confirmed by a flat December with only 1% growth in multiples per sale.
This investor-initiated correction is a reminder that high-flying stocks can quickly collapse. Of the 40 blue-chip companies that compose the E-Spring B2B SaaS Index, 60% experienced a decline in valuation in the final quarter of the year. These results are unprecedented since the index was introduced in early 2021.
Such results are the product of a multitude of economic factors. From a microeconomic perspective, a significant portion of the software companies that benefited from the surge in the use of digital remote working solutions through COVID-19 are now experiencing a growth ceiling. Although the use of SaaS solutions has become a cornerstone of corporate tools – from SMEs to large corporations – the volume of new adopters is mechanically decreasing each month due to the finite size of the market addressed. Thus, analysts who were bullish on certain software stocks a few months ago are getting rid of them when growth projections suddenly shrink, knowing full well that no company can sustain the pandemic growth figures we have seen.
Concurrently, from a global perspective, macroeconomic factors such as the increasingly hawkish attitude of central banks regarding future interest rate hikes and the global paradigm shifts this implies are also playing a role in influencing the evolution of the funds’ investment strategy, sometimes calling into question high multiple growth stocks.
| Name | Country | Market Cap (EUR) | EV/SALES 2021 | EV/EBITDA 2021 | P/E 2021 | Sales CAGR (2018 – 2020) |
| Adobe Inc. | US | 237 Bln | 17,0x | 40,8x | 56,0x | 19,40% |
| Alteryx, Inc, | US | 3,59 Bln | 7,3x | – | – | 39,80% |
| Anaplan, Inc. | US | 5,95 Bln | 14,5x | – | – | 43,80% |
| AppFolio, Inc. | US | 3,69 Bln | 11,4x | – | – | 27,70% |
| Atlassian Corporation Plc | AU | 84,7 Bln | – | – | – | 35,40% |
| ATOSS Software AG | DE | 1,73 Bln | 17,8x | 57,1x | 98,6x | 17,20% |
| ATTRAQT Group plc | UK | 74,4 Mio | 2,4x | 63,9x | – | 10,70% |
| Avalara, Inc. | US | 9,87 Bln | 15,4x | – | – | 35,60% |
| Avast Plc | CZ | 7,5 Bln | 9,8x | 17,8x | 22,7x | 5,10% |
| AVEVA Group plc | UK | 12,2 Bln | 13,1x | 69,1x | – | 30,90% |
| BlackLine, Inc. | US | 5,34 Bln | 14,1x | – | – | 24,30% |
| Blue Prism Group plc | UK | 1,46 Bln | 6,5x | – | – | 60,00% |
| Datadog, Inc. | US | 48,9 Bln | – | – | – | 74,50% |
| DocuSign, Inc. | US | 26,5 Bln | 20,8x | – | – | 37,10% |
| Dynatrace, Inc. | US | 15,1 Bln | 24,6x | – | – | 17,10% |
| Elastic N.V. | US | 10 Bln | 18,1x | – | – | 63,50% |
| Everbridge, Inc. | US | 2,28 Bln | 7,0x | – | – | 35,80% |
| HubSpot, Inc. | UK | 27,4 Bln | 23,8x | – | – | 31,20% |
| Medallia, Inc. | US | 4,82 Bln | 11,1x | – | – | 24,10% |
| Mimecast Limited | UK | 4,66 Bln | 10,5x | 71,8x | – | 27,70% |
| Nemetschek SE | DE | 13 Bln | 19,4x | 60,1x | 95,0x | 13,60% |
| New Relic, Inc. | US | 6,32 Bln | 10,3x | – | – | 29,90% |
| PagerDuty, Inc. | US | 2,63 Bln | 12,5x | – | – | 44,50% |
| Paycom Software, Inc. | US | 21,2 Bln | 22,9x | 58,0x | 93,0x | 21,90% |
| RIB Software SE | DE | 2,25 Bln | – | – | – | 36,40% |
| salesforce.com, inc. | US | 220 Bln | 11,3x | 77,1x | 61,5x | 27,40% |
| ServiceNow, Inc. | US | 114 Bln | 21,5x | 65,3x | 108,2x | 31,60% |
| Sidetrade SA | FR | 235 Mio | 6,7x | 45,1x | 70,7x | 10,00% |
| Smartsheet Inc. | US | 8,63 Bln | 24,6x | – | – | 56,00% |
| Splunk Inc. | US | 16,2 Bln | 8,6x | – | – | 34,20% |
| Talend S.A. | FR | 1,91 Bln | – | – | – | 18,20% |
| TeamViewer AG | DE | 2,38 Bln | 5,6x | 12,0x | 15,8x | 32,80% |
| Unity Software Inc. | US | 36,7 Bln | 36,9x | – | – | 42,40% |
| Veeva Systems Inc. | US | 34,5 Bln | 25,7x | 92,5x | 103,4x | 26,40% |
| Wix,com Ltd, | IL | 7,9 Bln | 6,6x | 92,7x | – | 28,00% |
| Workday, Inc. | US | 60,1 Bln | 15,5x | – | – | 30,10% |
| Workiva Inc. | US | 5,84 Bln | 14,6x | – | – | 20,00% |
| Yext, Inc, | US | 1,13 Bln | 3,4x | – | – | 32,50% |
| Zendesk, Inc. | US | 11,1 Bln | 9,3x | 91,0x | – | 31,10% |
| Zuora, Inc. | US | 2,08 Bln | 7,4x | – | – | 27,00% |
| Median | 12,8x | 63,9x | 81,9x | 30,50% |
Source: S&P Capital IQ, Valutico (31/12/2021)
Index background
Our basket is of course partial and has no intention to reflect perfectly the entire SaaS Public landscape. Our goal is to give an outlook of the market with a more balanced index of what is available with the US Nasdaq SaaS index. More than 100 Public SaaS companies are available. Here, we focus on European-born leaders like Avast, Datadog, Elastic, Talend, TeamViewer, Zendesk, …
At E-Spring, we like to keep an eye on the SaaS Public companies. The market data gives good insights when we do a private SaaS business valuation. In some ways, it’s always connected to the market. It shows the trends and the confidence in the sector. Who are the champions of the league. So, we decided to construct our own SaaS index of 40 companies that we selected as being as much as possible representative of the SaaS B2B market, keeping the right balance between the US and Europe (European-founded public SaaS companies).
For this outlook, we choose a quarterly report to keep a mid-term view of the market. As much as possible we will keep the same basket but feel free to interact with us to enrich this exercise. We hope it will be helpful in these particular times.
Do you have questions regarding SaaS business valuation? Contact us.
