Growth VS Profitability’s Valuation Impact

For SaaS companies, profitability is in vogue, but we would caution about sacrificing too much growth to achieve it. 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 100 publicly traded SaaS companies we follow, the 50 most profitable but slowest growing companies have average and median revenue multiples of 7.1x and 5.3x respectively. Alternatively, the 50 fastest growing but least profitable companies have average and median revenue multiples of 9.3x and 7.7x. 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 6.5x and median of 7.8x. The fastest growing but least profitable companies have an average multiple of 10.4x and median of 10.1x. 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. Email the author directly at sammy@blossomstreetventures.com