We closely monitor ever SaaS company that has gone public since October 2017. In this blog we compare the performance of the profitable and unprofitable companies in 2024 and 2023, and some of the findings are surprising. Below is the data and our key observations.
Profitable companies are larger, slightly. On median, profitable companies did $698mm of revenue in 2024 versus $671mm for unprofitable companies. We expected profitable companies to be much larger, as we’d expect them to be more mature, but that’s not the case.
S&M spend is way higher at unprofitable companies, as is R&D. Unprofitable companies had median S&M spend of $321mm versus only $157mm for profitable companies. This makes sense to us as the unprofitable companies grow much faster. Unprofitable companies also spent more on R&D ($163 mm on median) versus profitable companies ($101mm). We believe the higher S&M and R&D spend at unprofitable companies is a major driver of the much higher growth.
The profitability is ok. The median operating margin for profitable companies in 2024 was 11%, whereas unprofitable companies had a margin of -18%. That is a surprisingly wide spread, and frankly while the unprofitable companies are arguably too unprofitable, the profitable companies may be giving up too much growth for such an incremental margin (see below).
The cost of profitability. The cost of profitability is the growth you forego by not burning cash. In this case, the profitable companies had median growth of only 9%, which is pretty ho-hum, while the unprofitable companies grew at 22% on median. Further, the unprofitable companies were pretty cash efficient getting to 22% YOY growth, generating $0.75 of new revenue for every dollar of net loss on median (that’s very good, especially if NDR is over 100%). The difference between the growth rates is staggering and even wider than it was in 2023. When compounded over many years it’s even more meaningful. So long as you’re cash efficiently growing (and $0.75 means a payback period on your operating loss of 1.5 years, which is excellent), trade the profitability for growth.
Thank you for your readership. See more blogs and SaaS data at blossomstreetventures.com. Email the author at sammy@blossomstreetventures.com.
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