Software Index
State of the Market
The NASDAQ Composite Index, S&P 500, and Dow Jones Industrial Average have recently hit all-time highs on favorable market and economic news. Positive earnings reports drove the tech-heavy NASDAQ's high of 18,690 on October 25th, with Tesla and Netflix leading the way. Improvements in inflation, employment, and investor sentiment following last month's Federal Reserve rate cut also contributed to the rally.
The primary market test looms as six of the "magnificent seven" report earnings between October 29th and November 14th. This is also true for the Scalar Software Index, with most companies reporting Q3 results in November.
Just in time for earnings season, the Scalar Software Index now includes key enterprise software metrics, including net dollar retention (NDR), ARR growth, and CAC payback period. Top-10 median NDR is 111%, ARR growth is 30.0%, and CAC payback is 22.4 months, respectively. The overall median NDR is 108%, ARR growth is 15.9%, and CAC payback is 35.7 months, respectively.
The massive delta in operating performance between the Index leaders and the rest of the Index also drives the most significant valuation gap in three years. In September, the top-10 NTM revenue multiple increased to 14.7x, while the median NTM revenue multiple decreased to 4.6x.
September Consumer Price Index (CPI) results showed an increase of 0.2%. On a 12-month basis, the CPI decreased to 2.4% in September, down from 2.5% in August. September marked the sixth consecutive month of decreasing annual inflation.
The Bureau of Labor Statistics (BLS) reported that total nonfarm payroll employment increased by 254,000 in September, surpassing the consensus forecast of 150,000. The unemployment rate edged down from 4.2% to 4.1% month-over-month.
Median
NTM Rev Multiple
4.6x
Median
NTM Rev Growth
11.3%
Median
Gross Margin
75.3%
Top 10*
NTM Rev Multiple
14.7x
Top 10*
NTM Rev Growth
21.3%
Top 10*
Gross Margin
76.6%
*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%)
11.7x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Average Growth (15%-25%)
7.2x
Multiple | Growth |
|---|
EV/NTM Revenue Multiple
Low Growth (< 15%)
3.9x
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.
Enterprise Software Operating Metrics
Last updated Q2 2024
Median
Net Dollar Retention
108.0%
Median
ARR Growth
15.9%
Median
Payback Period
36 months
Top 10*
Net Dollar Retention
111.0%
Top 10*
ARR Growth
30.0%
Top 10*
Payback Period
22 months
*Median multiple, growth rate, and gross margin for the top 10 companies based on EV/NTM Revenue.
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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