Public Venture

SaaS Bounces Back

The SaaS market has recovered from recent lows, returning to comparatively healthy levels on the public markets.

In regular trading today, the BVP Nasdaq Emerging Cloud Index, formerly known as the Bessemer Cloud Index, closed above the 900-point threshold. The Index, launched in the later months of 2018, began its life in the high 900s, before falling just under 800 in November, and to back new lows around the 770s in December.

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January is bringing some cheer to cloud and SaaS companies who were dealt a holiday surprise in 2018 when their shares dropped. Indeed, as 2018 came to a close, market sentiment regarding technology equity and technology startups slipped yet again. This was the time, it seemed, that the correction really was coming.

Maybe not. We’re still too early for earnings season, and the Apple memo still hovers over the market, but some tech shares are bouncing back. Box opened the year worth $16.53 per share. The well-known SaaS company closed today worth $19.22. Dropbox, another famous cloud and SaaS company) opened the year at $19.96. It closed today at $22.07. 1

This game is easy to keep playing. Atlassian kicked off 2019 worth $85.82 but closed today worth $94.82. And on and on. There are exceptions, I’d bet you, but some of the pessimism that was laid thick on companies focused on providing software as a service has sloughed off.

How might the market changes impact the 2019 IPO cohort? Most of the big names that we keep kicking around aren’t SaaS: Uber, Lyft, Airbnb, Pinterest. Slack is, but it feels nearly like an exception. Slack’s potential offering may benefit from the re-re-pricing of SaaS, but it won’t matter for most decacorn debuts.

There will be smaller, enterprise-focused IPOs that happen as they always do. Those may be the chief benefactors from the SaaS recovery (such as it is), provided that they file soon.

And startups looking to raise may breathe a bit easier. This is not the first time in the current tech cycle that the idea “raise now or maybe die” became a Silicon Valley warning. But it’s also not the first time that that fear seemingly gave up pretty quickly. The optimism of mid-2018 or 2014 will be hard to replicate, but the fear seems to be on hold, for now.

But here’s something to chew on. Even if SaaS and cloud stocks slip some, the previously mentioned Cloud Index rose around 40 percent last year. Returns like that are hard to replicate, sequentially. Seeing gains is an indication that public markets aren’t giving up — yet — on growth-oriented tech shops that covet recurring revenue and often can’t help but deliver operating losses and cash flow negativity.

Illustration: Li-Anne Dias

  1. Data via Yahoo Finance’s historical share price figures, using opening prices on January 2 for each company, and their regular market closes on the 8th.

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