Software Index
State of the Market
Public technology company indexes continued to decline month-over-month. The NASDAQ fell 2.55% in September but continues to hold onto year-to-date gains after trading relatively sideways through the third quarter. The Scalar Software Index's medium NTM revenue multiple has decreased by 3.2%, and the Top 10 Scalar Software Index median multiple has decreased by 4.2% to 12.8X. There were some positive developments in the public markets as ARM Ltd, Instacart, and Klaviyo all successfully tapped the IPO market last month.
Total nonfarm payroll employment rose by 336,000 in September, while the unemployment rate remained constant at 3.8 percent. Within the NFP data, there are signs that more Americans are taking on more than one full-time job, potentially to cope with the effects of inflation.
Oil prices continued to rise in September as OPEC+, led by Saudi Arabia, extended production cuts through the end of the year, and prices saw a sharp increase when futures markets reopened after the weekend’s atrocities in Israel. The US 10-year treasury has increased by more than 100 basis points in the past six months, pushing residential 30-year mortgage rates to just below 8 percent. The Mortgage Bankers Association reported that mortgage applications to purchase a home at the end of September fell to the lowest level of activity since 1995.
The Federal Reserve FOMC meeting is scheduled for later this month, with varying opinions on whether the Federal Reserve will increase the Federal Funds Rate by another 25 basis points. The yield curve has been flattening as interest rates have increased in longer-dated treasuries since the last rate hike on July 26, and there is chatter that this could signal an extended pause in rate hikes after recent remarks from regional Fed officials. Overall, the economic data continues to paint a challenging picture. High-growth technology companies will likely face headwinds in the current state of the market. Long-term interest rates remaining higher for an extended period benefit savers but have a negative impact on both private and public company valuations. Therefore, we do not expect market multiples to experience any significant growth without further clarity from the Federal Reserve.
Median
NTM Rev Multiple
5.5x
Median
NTM Rev Growth
13.2%
Median
Gross Margin
75.0%
Top 10*
NTM Rev Multiple
12.8x
Top 10*
NTM Rev Growth
20.6%
Top 10*
Gross Margin
75.0%
*Median multiple, growth rate, and gross margin for the top 10 companies based on EV/NTM Revenue.
Valuation Trends
Index Leaders
Top 10 companies in the Software Index based on current EV / NTM Revenue Multiple.
Multiples by Growth Tranche
Valuation multiples are strongly correlated to expected growth. Scalar has selected the tranches based on current market conditions.
EV/NTM Revenue Multiple
High Growth (> 25%)
10.1x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Average Growth (15%-25%)
7.5x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Low Growth (< 15%)
3.5x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple - Top Quartile
NTM Revenue Multiple and NTM Growth Rate for the top quartile of companies in the Scalar Software Index, ordered by NTM Growth Rate.
Pre- & Post- Money Deals
Averages for the trailing 6 months of successful software and SAAS fundraising, including rounds Series A through Series D.
Average
Deal Size
Average
Pre-Money Valuation
Average
Post-Money Valuation
The data for the Scalar Software Index is collected based on market data on the last trading day of the previous month.
Metric definitions:
- EV/NTM Rev: Enterprise value to next twelve months revenue.
- EV $MM: Enterprise value, calculated as the market value of equity plus net debt and minority interest, in millions of USD.
- LTM Rev $MM: The last twelve months revenue in millions of USD.
- NTM Rev Growth: The expected growth rate of revenue for the next twelve months.
- LTM Rev Growth: The growth rate of revenue over the last twelve months.
- Gross Margin: The percentage calculated from gross profit over revenue.
- Operating Margin: The percentage calculated from operating income (EBIT) over revenue.
- FCF Margin: The percentage calculated from unlevered free cash flow over revenue.
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Data Sources: S&P Global Market Intelligence and PitchBook Data, Inc.
Enterprise Software Operating Metrics provided by Public Comps.
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