Software Index
State of the Market
The Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) results from May, which increased by 3.3% annualized, versus April’s increase of 3.4% annualized. The BLS also reported that total nonfarm payroll employment increased by 272,000. The markets rallied on the better-than-expected news, with the S&P 500 and NASDAQ reaching their all-time highs.
Notwithstanding, a large portion of the S&P 500’s weighting still resides with the “Magnificent 7”. For example, Nvidia’s market cap as of January 2, 2024 was $1.19T and as of June 18, 2024, Nvidia’s market cap exceeded $3.3T, becoming the most valuable company in the US. Nvidia’s monstrous performance has helped propel the S&P 500’s gains for the year.
While the “Magnificent 7” have helped drive all-time highs, other publicly traded companies have experienced only modest gains, or remained relatively flat. This is especially true of technology growth stocks, where higher interest rates have dampened market enthusiasm for these businesses.
This trend is reflected in the performance of industry-specific indices. The Scalar Software Index's next twelve months (NTM) top-10 revenue multiple is down 13.1% month over month to 12.7X, and the Scalar Software Index NTM median revenue multiple is down 22.2% month over month to 4.4X.
Median
NTM Rev Multiple
4.4x
Median
NTM Rev Growth
11.3%
Median
Gross Margin
75.3%
Top 10*
NTM Rev Multiple
12.7x
Top 10*
NTM Rev Growth
21.0%
Top 10*
Gross Margin
75.7%
*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%)
9.8x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Average Growth (15%-25%)
7.4x
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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