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Corporate Solutions Whether you are a large or small firm, GeoInvesting will cater to your needs and create a sound process for corporate diligence. Our specialty is Portfolio Protection – in fact, every aspect of what we do boils down to various ways that your M&A process or investment... More
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  • Valuing A SaaS Company Can Be A Little Tricky 0 comments
    Jan 15, 2013 2:50 PM | about stocks: ET, EOPN, DTRM, TNGO

    A main focus of SaaS companies is to compete and capture market share to increase recurring subscription based revenue. This frequently leads to a company incurring high sales and marketing expenses and the generation of minimal net income and EBITDA. Eventually, these companies plan to earn profits as they grow and scale back on marketing expenses. So, in the short-term a measure like P/E is not a great barometer of value. Our goal is to value SaaS companies using other measures that do not rely on income data. Thus, sales multiples are often looked at as better measures of value. Still, we are cognizant that SaaS companies' revenues consist of subscription fees that are received as cash up front, but where services pertaining to the contract are performed over time. Under GAAP, even though 100% of subscription revenue may be collected up front and shows up as cash on the balance sheet, only a portion of it is recognized on the income statement. The rest is classified as deferred revenue on the liability side of the balance sheet until it is earned. Deferred revenue is recognized on the income statement as services attached to such revenue are "earned" (the service is completed). The summation on sales and bookings is commonly referred to as total bookings.

    Stocks: ET, EOPN, DTRM, TNGO
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