The share prices of SaaS (software-as-a-service) companies have risen massively over the past year. Even after the sharp pullback many of them experienced in late-February and March this year, the share prices of SaaS companies still trade at relatively higher multiples than they did in the recent past.
The chart below by venture capitalist Jamin Ball shows current SaaS company valuations:
Source: Jamin Ball’s newsletter, Clouded Judgement
The blue line on the chart shows that the median EV-to-NTM revenue (median enterprise value to the next twelve months revenue) multiple for SaaS companies has risen sharply in the last two years. And despite the sell-off over the last couple of weeks, SaaS companies still trade at a higher multiple than they did at any other time before mid-2020.
This has led to some investors assuming that SaaS company valuations are still too high.
On the surface, that may seem the case but it could also be that valuations for SaaS companies were simply way too low in the past....