Software: A Trip Down Memory Lane

Razor's Edge- September 21, 2021

Total Software Market Cap has now hit $5 trillion across 73 stocks (pretty comprehensive list I've built/filtered over years). Even if you remove Microsoft/Oracle/IBM which have decent hardware/infra offerings, the more SaaSy TAM is still $2.4 trillion across 70 names. Covid has pretty much provided the punctuation to this amazing five year run. Anyways, as I have been doing more work here recently I figured today was a good day to take a quick trip down this SaaS memory lane.

How old are these stocks?

-60% of the names have been public for less than five years

-40% of the names have been public for less than three years

-15% of the names have been public for less than 1 year

What about valuation?

-The most expensive name, Sentinel One, trades at 121x ttm Ev/Sales

-The cheapest name, BenefitFocus, trades at 2x ttm Ev/Sales

-The median name trades at 22x ttm Ev/Sales

-The group as a whole when you remove msft/orcl/ibm trades at 65x ttm operating cashflow. This goes up to 85x if you remove the other former on-prem leaders of sap/adbe/adsk/intu.

Who have been the best performers in SaaS?

-The best performing name over the last 12 months is Cloudflare at 243%

-The best performing name over the last 3 years is Zscaler at 595%

-The best performing name over the last 5 years is Atlassian at 1224% (I recently shared some thoughts/analysis on the name for paid subs here)

Who have been the worst?

-The worst performing name over the last 12 months is former Fintwit darling Fastly at -49%

-The worst performing name over thee last 3 years is BenefitFocus at -72%. Yext, Zuora, IBM, Newrelic, Nutanix, and Box are the only other names with negative returns over that period.

-The worst performer over the past five years is also BenefitFocus at -71%. The only other name with a negative return over that time period is IBM at -13%.

I'd also add the median performances have been pretty amazing. Over 5 years its 350%, over 3 year its 115%, and over the past 12 months its 38%.

Will the next five years be as good....