We looked at the most recent quarterly financial results for the Class of 9 B2B SaaS IPO’ers in 2014, and compared them to their numbers from one quarter back (for most companies, comparing Q2 ’15 to Q1’ 15) to see what’s happening.
The first conclusion is that the average revenue to market cap multiple hasn’t changed a lot, but is slightly up in the most recent quarter. The group ranged from a low of 2.16 times revenue for Five9 to a high of 17.03 for Workday.
At the same time, revenue growth on average is down a few points, from an average of 55.7% in Q1 to an average of 49.8% in the quarter ending in July 2015. The fastest growth company was Tableau with 71.4% annual growth on 2nd quarter revenues of about $150M as compared to Five9 with only 22.4% annualized growth on quarterly revenue of just over $30M.
Revenue Growth Still Driving Market Caps
Revenue growth remains one of the key factors driving SaaS market caps. With an above average revenue growth rate, Tableau’s revenue to market cap is also above the average at almost 14 times revenue.
Sales and marketing spend in the most recent quarter remains almost the same for this 2014 IPO class, the average only changed from 60% in Q1 to 59.1% most recently. Hortonworks was the biggest spender on sales and marketing, spending 109% of quarterly revenue in Q2 with a reward of 8.75 times revenue in market cap.
The market appreciates not being a spend thrift in sales and marketing if you get the results. Take a look at Veeva Systems and Five9 in the chart below. Both are spending below the average on sales and marketing, so possibly a red flag. Five9 is getting below average revenue growth, and getting the lowest revenue to market cap multiple in the class.
Sales and Marketing Spend an Important Indicator, BUT
Meanwhile, Veeva is managing to spend the absolute lowest of the class on sales and marketing, but near the head of the class on market multiples. Apparently if you do need to make the investment in sales and marketing, the market likes it too if you have a good story like Veeva.
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