Morning Markets: There’s less carnage out there than you thought.
As earnings season closes out, reports from software as a service (SaaS) giants Box and Salesforce disappointed. Box was dramatically repriced after its earnings report was light on forward guidance and Salesforce suffered a similar, if more muted reaction, to its own projections.
But the two companies’ missed reports haven’t done material damage to SaaS stocks as a whole. The cloud, regardless of your opinion about its current valuation or cost, is still in pretty good shape.
There are two core figures for us to keep in mind. First, according to the now-familiar BVP Nasdaq Emerging Cloud Index (the old Bessemer Cloud Index, rebranded and relaunched with the Nasdaq so that it now updates daily), cloud and SaaS stocks are only a smidgen off all-time highs.
The result of the valuation declines that Box and Salesforce endured and whatever impact their earnings reports had on other, related companies, seems to be modest. Per Bessemer’s own chart, this is the extent of the selloff:
You have to squint a little, but in the upper right corner of the chart, where the blue line ends, it does dip a bit. That’s it.
The second number that we care about today is 10, or 10.0, really. That’s the current enterprise value of the companies that make up the Index, divided by their revenue. In short, the group is still worth about ten times its topline revenue.
That’s a historically high figure and one that is very healthy. So, despite the recent letdowns from some of SaaS’s biggest and best-known players, the market for the sort of revenue that modern software companies offer is still strong. For the startups of the world, that’s welcome news.
Top Image Credit: Li-Anne Dias.
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