SaaS: What value makes sense?

$crwd & $hubs analyzed

SaaS valuations: Price to sales is dead! Long live free cash flow!

Forgot the constant bs from the sellside, did growth accelerate or decelerate?  If it accelerated, put a bigger price to sales multiple on the stock.  If it decelerated, say the price to sales ratio might be under pressure.  Give me a break!  As we said yesterday in our weekly update, price to sales is a way to compare stocks to each other, at a point in time, but has no basis in reality on what a company is worth today.  Remember, a 20x Price/Earnings means you would get the entire market cap back in 20 years if the E stayed the same.  If the E grows then even sooner and the multiple might expand.  That is something we can all appreciate.  Price to sales 5, 10, 20 or 30x is truly just a moving target and market subjective.  We thought today we would analyze two companies, $CRWD and $HUBS to show you how we “think” you might want to approach SaaS names in the coming weeks and months to determine the true values that might be upon us.  It is meant as a framework for you to do the same analysis on other names.

So lets get started.

$CRWD – market cap $38 billion, EV $37 billion, $1b net cash

Subscription revenues last 5 quarters:

$244m, $281m, $315m, $357m, $405m

Incremental subscription revenues added last 5 quarters:

+$37m, +$34m, +$42m, +$48m

Growth over the 5 quarters:   

$405m/$244 = 66% growth

Do you see any sort of pattern here?  We do.  They seem to be adding $34-48m in incremental subscription revenues every quarter.  Sure, its nice to say wow last quarter it “accelerated” to $48m or $200m annualized.  Very true and very impressive.  The stock lost 1/3 of its value in less than a month based on…..nothing.  It is now 17x 2023 fiscal sales (from about 25x a month ago).  Should it still be 25x or 10x?  How can you possibly know?  The sellside surely doesn’t.  They move targets with stock action and “relative”.