Sacha Labourey

Red Hat's Latest Acquisition Brings Multiples Back to Earth

Hello Dennys,

I enjoy reading your posts.

Still, I am not sure where you got some of your numbers...

Anyway, only looking at revenues for valuating a subscription-based business in a high growth period makes very little sense, that's why those acquisitions are usually based on bookings (single year bookings preferably), not revenues.

Reasoning? If such a subscription-based company would have no-growth at all during the next 12 months, their SY-bookings would be equal to their revenue. BUT, if such a company would have a high growth Y-to-Y (like 100%), revenue would be much lower than their SY-bookings - which is the case for most of the companies you list in your article.

This is a cash-flow business model - unlike some software vendors with a strong percentage of license-based bookings - mostly recognized as revenue upfront, not over-time.

This "trailing" effect of revenue vs. bookings is something subscription-based companies constantly have to re-explain to the street, used to deal with more traditional license-based software vendors.

But I guess you already knew all that :)

Cheers,

Sacha Labourey

Disclaimer: while I work for RHT, the posting above is my own and don’t necessarily represent RHT’s positions, strategies or opinions.