In a recent AFR article, Alex Waislitz was quoted in relation to his shareholding in Getswift,
“you may have a framework of revenue over the next 12-18 months of $20-$30 million. Some tech companies are trading on 20-30 times revenue. If that promised revenue does come through for GetSwift then you could see them being valued again at $400-$800 million.”
This quote offers a good opportunity to put our recent SaaS Valuation and analysis framework (Part I, Part II, Part III) into practice. It prompts a number of questions:
Is Sales a Legitimate SaaS Valuation Metric?
In Part I of our SaaSy stories, we noted that software stocks were no different to other stocks in the way they created value – i.e. by deploying capital at high rates of return. By virtue of their high gross margins and generally conservative accounting, the best way to understand this process was via the sales line. As a result, both private and public markets tend to use EV/Sales as a shorthand valuation tool for the sector.
Is 20 – 30 x Sales a legitimate level for this measure?