U.S. and European public cloud companies have lost $1.6 trillion in value in 12 months according to Accel’s 2022 Euroscape report.
Their value declined from $2.8 trillion in September 2021 to $1.2 trillion in September 2022, a drop of 57%. The average forward revenue multiple trended down from 17x to 6x in that timeframe. And average forward growth rate declined from 26% to 21%, a slowdown of around 20% in the growth rate.
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We spoke with Philippe Botteri, a partner at Accel based in their London office, on the latest report.
“It’s not that suddenly all the growth has disappeared,” said Botteri of the 122 public cloud companies it analyzed. “The growth has slowed down a bit, but the multiples have been compressed a lot more than the growth has been impacted.”
Since the introduction of the cloud 15 years ago, around 40% of workloads have moved to the cloud and that share is projected to grow to 51% in 2025, according to the report.
“If you follow the trend lines, we could have overcorrected,” said Botteri of the drop in value of public cloud stocks. Which is not to say it can’t drop further, but rather the growth trajectory for cloud SaaS businesses is still promising over the longer term.
Meanwhile, M&A activity for technology companies taken private has increased and valued these companies on average at higher multiples by 9x revenue and at a 33% premium compared to the current stock price, according to the report.
Companies that have been taken private include SailPoint and Anaplan by Thoma Bravo, Mimecast by Permira and Avalara by Vista Equity Partners.
Between private equity and public cloud companies, Accel estimates $330 billion from private equity and $440 billion from public strategics totaling $770 billion in dry powder for M&A transactions.
Private cloud companies
The impact of this decline for private SaaS unicorn companies is that valuations are now closer to 10x average revenue.
Since January 2020, around 122 European and Israeli unicorn-valued cloud companies have raised a total of $44 billion, a huge volume of funding concentrated in a small number of companies.
The impact of all this funding means “they don’t need to raise right now,” said Botteri. “They need to digest that money” to invest and grow.
Over 50% of these SaaS unicorn companies have more than $100 million in ARR.
These companies are more likely to raise flat rounds rather than up rounds when they do so in the coming years, the report predicts, based on these revised valuation metrics and revenue projections.
The next Euro cloud 100
Highlighted in Euroscape 2022 are 100 cloud companies from Europe and Israel that are not yet unicorns, have more than $1 million in annual recurring revenue and are companies to watch.
Illustration: Dom Guzman
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