SaaS Valuation: What Is The Bessemer Venture Partners Index Telling Us To Short?

by: Abe Garver


38 publicly traded comparables in the BVP Cloud Computing Index at July 24, 2014.

EV/Revenue valuations range between 2.0x-28.9x.

Median of 6.8x (EV/Revenue) and $204.4 million of revenue.

Mean of 8.0x (EV/Revenue) and $463.1 million of revenue.

One of my favorite sources of information for public SaaS (Software-as-a-Service) comparables is Bessemer Venture Partners.

If you are a retail, institutional, or strategic buyer contemplating an investment in the SaaS sector, here is what you need to know.

Expect to pay an average of 8.0x for every dollar of revenue the company has. If the target is more or less expensive than that, figure out why.

According to BVP, the key business metrics to focus on are: 1) Committed Monthly Recurring Revenue (CMRR), 2) Cash Flow, 3) CMRR Pipeline (CPipe), 4) Churn, 5) Customer Acquisition Cost (CAC), and 6) Customer Life Time Value (CLTV).

Where can you find Alpha? Most likely it will be at one of the extremes (e.g. Castlight Health (NYSE:CSLT) at 28.9x revenue or Rally Software (NYSE:RALY) at a mere 2.0x revenue.).

From a valuation perspective, obvious short ideas for more research include Xero (OTCPK:XROLF), Workday (NYSE:WDAY), Demandware (NYSE:DWRE), and ServiceNow (NYSE:NOW).

Here is how all 38 stack up against each other.

Interestingly, both LinkedIn (NYSE:LNKD) at 9.0x revenue and Salesforce (NYSE:CRM) at 7.0x revenue trade above the median (6.8x revenue).

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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