Q4 SaaS margins improve

SaaS companies are burning less cash. Every quarter we look at the operating income and margin of every SaaS company that has IPO’d since October 2017 (61 active companies). The data is below and shows that operating margin and loss have improved. Below is the data.

Margin has really improved. In Q2 2022, operating margin on median was a low of -32%. Since then, the margin has improved trending to -15% as of Q4 2023. That’s great progress.

Operating loss has also improved. In Q3 2022, operating loss on median was -$23.1mm. Operating loss in Q2 2023 was -$12.1mm.

Profitability is up. Out of the 61 companies shown, 38 of them were unprofitable. That’s 62% of the dataset, which in an improvement versus Q1 2022, when the 82% were unprofitable.

If the goal is profitability, it will be a long haul. The first dollar of cost is much easier to cut than the last dollar, and we do expect gains in operating margin to slow. We do not expect the sector to attain profitability on median, but the efficiency at which these companies grow will improve. Those that cant improve to an acceptable level will likely be acquired at attractive valuations.

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