Software Index
State of the Market
The Bureau of Labor Statistics (BLS) released its July Consumer Price Index (CPI) results, which showed an increase of 0.2%. On a 12-month basis, the CPI decreased to 2.9% in July, down from 3.0% in June. This result marks the second monthly decrease in annual inflation, bringing the CPI down to its lowest rate since the pandemic.
The BLS also reported that total nonfarm payroll employment increased by 114,000 in July, far below the consensus forecast of 175,000. In addition, the July jobs report revised down the previously released employment data for June and May. The resulting unemployment rate rose month over month from 4.1% to 4.3%.
Global markets have experienced massive moves this month as investors respond to mixed news. Japan had its worst three-day move in history, and the Dow Jones Index dropped 1,034 points — its 12th-largest single-day decline. However, as of August 15th, the S&P, Dow, and Nasdaq indices are posting two-week highs on favorable retail sales and an expected Federal Funds Rate cut.
This volatility has affected large-cap stocks with aggressive valuations to a greater extent than the overall market. The Scalar Software Index reflects this, with the top-10 next-twelve-months (NTM) revenue multiple down 4% to 13.5X and the median NTM revenue multiple up 1.1% to 4.8X.
We anticipate continued volatility in both public and private markets. Fears of recession, liquidity challenges, changing costs of capital, and unpredictable corporate earnings will drive dynamic valuations.
Median
NTM Rev Multiple
4.8x
Median
NTM Rev Growth
11.3%
Median
Gross Margin
75.3%
Top 10*
NTM Rev Multiple
13.5x
Top 10*
NTM Rev Growth
20.7%
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%)
10.2x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Average Growth (15%-25%)
7.2x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Low Growth (< 15%)
3.8x
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.
The information contained in this newsletter is for general information purposes only. The information is provided by Scalar and while we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the newsletter or the information, products, services, or related graphics contained in the newsletter for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this newsletter.
Every effort is made to keep the newsletter up and running smoothly. However, Scalar takes no responsibility for, and will not be liable for, the newsletter being temporarily unavailable due to technical issues beyond our control.
Data Sources: S&P Global Market Intelligence and PitchBook Data, Inc.
Enterprise Software Operating Metrics provided by Public Comps.
Get the monthly Software Index delivered to your email
** By clicking the button I agree to receive a monthly E-mail from Scalar