Growth gets a much higher multiple than profitability

We wrote this article last quarter, and have updated it for the latest Q1 2024 SaaS multiples.

For SaaS companies, profitability is in vogue. In our view this is wrong. A SaaS company will drive far more value if they grow high quality ARR (100%+ NDR) in a cash efficient manner (generate $0.70+ of net new ARR for every $1 of operating loss). The data below proves that view out. Of the 109 publicly traded SaaS companies we follow, the 50 most profitable but slowest growing companies have average and median revenue multiples of 7.45x and 6.11x respectively. Alternatively, the 50 fastest growing but least profitable companies have average and median revenue multiples of 10.53x and 9.01x. Those are very big differences.

If we isolate it to just the top 25 companies of each category, the most profitable but slowest growing companies have an average revenue multiple of 6.89x. The fastest growing but least profitable companies have an average multiple of 12.85x. The data is clear: if you’re a SaaS company with high quality ARR (100%+ NDR), do not sacrifice cash efficient growth for profitability.

Below we show the 50 most profitable but slowest growing companies. To put the list together, we sorted by slowest growth first and most profitable second.

Below we show the 50 fastest growing but least profitable companies. To put the list together, we sorted by least profitable first and fastest growing second.

Thank you for your readership. Visit blossomstreetventures.com for more SaaS data and blogs.