For SaaS companies, profitability has received a renewed focus, but we would caution against sacrificing too much growth to achieve it. The data shows a SaaS company will drive far more value if they grow high quality ARR (100%+ NDR). The data below proves that view out.
Of the 74 publicly traded SaaS companies we follow, the 30 most profitable have average and median revenue multiples of 6.4x and 3.7x respectively. Alternatively, the 30 fastest growing have average and median revenue multiples of 11.5x and 6.8x. Those gaps in valuation are massive. The data is clear on this: if you’re a SaaS company with high quality ARR that compounds over time (100%+ NDR), do not sacrifice cash efficient growth for profitability.
Below we show the 30 most profitable companies.
Below we show the 30 fastest growing companies.
A few other observations.
The margin difference. High profitability SaaS enjoys a 25% median EBITDA margin while high growth has a 0% median EBITDA margin. The market is paying 84% more for companies running at breakeven versus companies with 25% margins, because of their growth.
The growth difference. The high profitability cohort grows at 11% on median. The high growth cohort grows at 26%.
Thank you for your readership. See more blogs and SaaS data at blossomstreetventures.com. Other resources we’ve built for founders include: SoftwareMultiples.com; softwareMRRcalculator.com; FounderInvited.com, and TwoFoundersTalk.com. Founders are always welcome to reach out to sammy@blossomstreetventures.com as well.
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