Software as a service companies, modern software firms often referred to by the acronym “SaaS,” had a tough day in the public markets. The basket of companies, as tracked by Bessemer’s cloud index, dropped 4.49% during regular trading hours.
The losses gave back some of the software industry’s recent gains, advances that had followed a sharp decline in the value of their shares as concerns relating to a COVID-19-induced economy hit the richly valued cohort of companies hard; indeed, at one point earlier in the year, SaaS and cloud companies were down around 38% from the 2020 highs.
Those losses, however, largely proved transitory. A steep rally in SaaS and cloud shares brought their decline from all-time highs (set earlier this year) to just about 10% yesterday afternoon. Then, today, the firms lost over 4%. This puts SaaS and cloud shares in between a correction and a bear market.
Earlier today, TechCrunch covered a number of “green shoots” for software companies relating to churn, and some back-of-the-napkin funding data for the month of April thus far. To see SaaS firms drop as sharply as they did right after rings of comedic timing.
But despite all the worries about churn and changing sentiment, SaaS companies are still richly valued compared to historical norms. How rich? Bessemer notes on its website the companies it tracks in its index were valued at an enterprise value/revenue multiple of 12.9x.
It’s kind enough that SaaS trades on a multiple of revenue, and not EBITDA; to see that revenue multiple sit comfortably above 10 is a gift. So far, however, a durable one. Investors have not lost their shine to SaaS shares, today’s trading notwithstanding.
In broader indices, the day’s damage was less severe, with the Dow Jones Industrial Average falling 2.67%, the S&P 500 falling 3.07% and Nasdaq Composite dropping 3.48%.