Clouded Judgement 8.23.24 - Don't Wait

🌈 Abstract

The article provides updates on the latest trends in cloud software companies, including insights on dealing with "private zombies" (companies struggling to grow), analyzing revenue multiples and operating metrics for SaaS businesses, and discussing strategies for getting acquired.

🙋 Q&A

[01] Don't Wait

1. What are the 3 concrete things the author recommends for companies in a "private zombie" situation?

• Determine if you're a short-term or long-term zombie, and be realistic about your chances of revival
• Get closer with your existing investors to understand their reserve policies and willingness to invest more
• Start building relationships with potential acquirers, as acquisitions take time and relationship-building

2. Why does the author emphasize the importance of not waiting and not relying on hope? The author states that "hope is not a strategy" and that companies should not wait or hope for things to improve, as that is like "a lottery ticket" - it's not a reliable plan of action.

[02] Quarterly Reports Summary

1. What are the key metrics and trends covered in the quarterly reports summary?

• Top 10 EV/NTM revenue multiples
• Top 10 weekly share price movements
• Analysis of SaaS business valuation based on revenue multiples, including overall median, top 5 median, and medians for high/mid/low growth companies
• Comparison of EV/NTM revenue multiple to NTM growth rate
• Median operating metrics like growth rates, gross margins, operating margins, FCF margins, net retention, CAC payback, and expense ratios

2. What is the purpose of the EV/NTM FCF chart and the EV/NTM Rev vs NTM Rev Growth scatter plot?

• The EV/NTM FCF chart shows the median FCF multiple for companies where FCF is a relevant valuation metric.
• The scatter plot shows the correlation between growth rate and valuation multiple, to understand how growth impacts company valuations.