SaaS Stocks Reach Fresh Highs

Morning Markets: Fair winds blow for Slack’s direct listing as public SaaS companies test fresh highs.

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This morning Bessemer Venture Partners and Nasdaq ‘BVP Nasdaq Emerging Cloud Index’ tested new highs as modern software companies found favor among public investors.

The Emerging Cloud Index, formerly known as the Bessemer Cloud Index, tracks a basket of public software companies that sell their products largely on a recurring basis; the so-called ‘software as a service’ model, or SaaS, is a popular way among tech companies big and small to vend their wares.

No matter which direction the Emerging Cloud Index moves, the benchmark provides valuable insight concerning market sentiment regarding companies of their ilk. Companies like many startups in the market today. And, companies that have shed their startup badge and are looking towards the public markets too. Slack is the latest example; the popular workplace communication tooling shop intends to debut this quarter in a direct listing, allowing its equity to trade without a traditional, priced share-sale.

Today the Emerging Cloud Index rose over 1,204 before retreating slightly. The same basket of stocks was worth far less during the December fear period, falling under 780 points before recovering. In recent weeks, the index has found itself stuck around the 1,100 mark; cresting further into the 1,200 territory is notable.

But the impact of the index’s rise won’t land on only Slack’s doorstep. Public market sentiment filters into the private market, influencing valuations and investing trends. (This is simple to understand: If the public markets reward one group of tech companies with rising valuations, private market investors may infer that investments into that area may have greater chances of a lucrative exit. The reverse also works.) This means that private SaaS companies could have a decent Q2 when it comes to raising capital and the like, though the connection between public and private markets is hardly instantaneous.

It’s a pretty good day for SaaS. We ‘ll continue to highlight peaks like this, and valleys when they eventually come.

Illustration: Li-Anne Dias.