2022年Q2软件行业报告

QualitativeinsightsintobroaderSoftwaretrendsandpublicandprivatevaluationsacrossthetransactionspectrum,andinterviewswithtoday’sleaderstransformingthesector.ImportantdisclosuresappearattheendofthisreportGPBullhoundCorporateFinanceLtdandGPBullhoundAssetManagementLimitedareauthorisedandregulatedbytheFinancialConductAuthorityGPBullhoundIncisamemberofFINRAGPBullhoundHongKongLimitedisauthorisedandregulatedbytheSecurities&FuturesCommissionGPBullhoundLuxembourgSàrlisauthorisedasanAIFMinLuxembourgbytheCommissiondeSurveillanceduSecteurFinancierTakeawaysTakeawaysTHEV工EWINUOUSDEPLOYMENT-AS-ASERVICEDINGISTAKINGOVERUILDSUPTHENEWCOSTOMPLIANCETYRE▪Deploymenthasbecomeacostlybottleneckforsoftwareproviders▪Theneedforcheapandend-to-enddeploymentoutsourcinghaspresenteditself▪ContinuousDeployment-as-a-Servicesolutionsarefillingthegapinthemarket▪Enterprisesoftwarebudgetsareshrinkingduetothecurrentmarketturbulence▪Usage-basedpricingisreplacingseat-basedandsubscription-basedmodels▪Adoptionofusage-basedmodelsisgrowingrapidlyamongtechgiants▪Rustestablisheditselfasamulti-paradigm,all-purposeprogramminglanguage▪Rusthasrecentlyexperiencedasharpuptickinpopularityduetoitssimplicity▪BigtechcompaniesarerapidlydeployingRustduetoitsbroaduse-cases▪Continuoustechnologyadoptionhascreatedanewwebofcomplianceissues▪Inresponse,regulatorsarelegislatingcontinuoussoftwaremonitoringlaws▪Continuouscyber-monitoringplatformshaveattractedprivatemarketinvestors▪Thecurrentmarkethasharshlyre-evaluatedunprofitablesoftwarecompanies▪Profitabilitybecameamuchmorerealisticvaluationmetricforpublicmarkets▪IndustryleaderVCsareadvisingsoftwarecompaniestofocusonprofitability2DBYTheusage-basedpricingmovementistakingoverDBYTheusage-basedpricingmovementistakingoverSaaS▪Usage-basedpricingmodelshaveonceagainbecomethepreferredoptionforcompaniesgivenrevisedsoftwarespendingbudgetsduetothecurrenteconomicclimate.Shrinkingsoftwarespendingbudgetshavemaderesourceplanningmorecautiousthanusual.CompaniesprefertopayaccordinglywiththeextractedvaluefromaSaaStoolratherthanpayingafixedsubscriptionfee▪Usage-basedpricingisamodelwhereclientspayforaSaaStoolaccordingtotheirmeasuredconsumption.Consumptionmetricsareusuallyalignedwiththevalueextractedbytheclientutilisingthetool.Usage-basedpricinghasprovenitselfintheSaaSecosystemandhasreplacedmoretraditionalfixedsubscriptionandseatbasedmodels▪MajorSaaScompanieslikeAWSandSnowflakeareofferingusage-basedpricingandareshiftingtherelationshipbetweensoftwareprovidersandtheircustomersfromunfairsubscriptionmodelstowardequitablevalueexchangesUsagebasedmodelscanallowclientstostartproductutilisationatlowercosts,limitingthestigmaaroundexpensivelaunchcostsAdditionallyusage-basedmodelscanexpandTAMforSaaSprovidersbybreakingceilingcaps,astheroductcanbeutilisedatanyscaleTakeawaysGPBULLHOUND’SSECTORTAKEAWAYSCurrentsoftwareperspectivesfromGPBullhoundlecttransactionsContinuousDeploymentlecttransactions▪Large-scaledeploymentshavealwaysbeenasignificantlytaskingmissionontopofsoftwaredevelopment.Multipleplatformintegrations,hiddencosts,professionalplanningrequirements,andITinfrastructurechallengesaresomeoftheobstaclesthatcompaniesfacewhenundertakingdeploymentprojects▪Intoday’sSaaSecosystem,deploymenthasalsobecomeapainfultaskatsmallerscalesduetotimeandresourceconstraintsthatarefacedmorecommonlyinthelowertiersofthesector▪Asaresponse,companieslikeArmoryarebringingContinuousDeployment-as-a-Servicesolutionstothemarketbyundertakingalllevelsofdeploymentonbehalfoftheirclientsatreasonablecosts.Armorycanactasastandaloneproductforcloudfirstcompaniesenablingend-to-enddeploymentefficiency DBYSources:Infoworld,SDTimes,TechCrunch,WallStreetJournal,VentureBeat(asof30June2022)Takeaways工NVESTMENTBYThenewcostofcompliance▪ContinuousadoptionofnewenterprisetechnologyTakeaways工NVESTMENTBYThenewcostofcompliance▪Continuousadoptionofnewenterprisetechnologyhasbeenfollowedbyhundredsofnewcybercomplianceregulationscreatingawebofsecuritystandardstocombatnewsecuritythreatsonlocalscalesandglobally▪Asaresponse,regulatorsaretighteninglawsbycreatingcontinuousmonitoringrequirementsasopposedtotraditionalcompliancecycles.ThecomplexityandaccelerationofnewregulationshasmadetheeffectivenessoftacticalauditmuteFollowingtheregulatorytrendstheneedfor24/7security-andcompliance-monitoringSaaShasbecomeareality▪CompaniessuchasA-LIGN,SecurityCompass,Coalfire,andothershavecreatedsoftwareplatformsthatallowcontinuousmonitoringofacompany’ssecurityandcomplianceprofile,allowingcompaniestorelievetheirITbudgetsandfocusonotherprojects▪Theneedforcybersecurityservicesandmonitoringplatformshasalsoattractedprivatemarketinvestors.BothA-LIGNWarburgPincus)andCoalfire(ApaxPartners)arebackedbylargeprivateequityplatforms.Otherprivateequity-backedplatformsincludeAlertLogic(WCAS),eSentire(WarburgPincus),Optiv(KKR),Presidio(BCPartners),RackspaceApollo),SecurityCompass(FTVCapital)工NVESTMENTBYdIV工NVESTMENTBYdIVTakeawaysGPBULLHOUND’SSECTORTAKEAWAYSCurrentsoftwareperspectivesfromGPBullhoundlecttransactionslecttransactions▪Rustisarelativelyyoungprogramminglanguagethatfirstappearedin2010buthasrecentlyexperiencedasharpuptickinpopularityduetoitssimplicitywithoutsacrificingcapabilityorflexibility▪Code-sharingwebsiteGitHubsaysRustwasthesecondfastest-growinglanguageontheplatformsince2019,showinganimpressive5%YoY▪Rusthasbroaduse-casesacrossapplicationdevelopmentanddatasciencesimilartoPython,withpremierecompanieslikeAmazon,Discord,Dropbox,Figma,MicrosoftandMozilladeployingthelanguageintotheirplatforms4Sources:A-LIGN,CapitalIQ,CareerKarma,Gartner,ISC2,Nature,Tiobe,Pitchbook,PRNewswire(asof30June2022)4TakeawaysTakeawaysTakeawaysTakeawaysGPBULLHOUND’SSECTORTAKEAWAYSCurrentsoftwareperspectivesfromGPBullhoundlecttransactionslecttransactions▪Thecurrentmarketclimatehasbroughtdownhigh-flyinggrowth-focusedsoftwarecompaniesasthedownturnbecameareality.Incontrasttotheoldinvestortestament,profitabilityhasbecomeamuchmorerealisticmetricforicandprivatemarketvaluationsD▪InQ12022,Bannouncedthatithadgained11,600netnewcustomers,whichwasitsDIPO,andaround3,500morethanthecompany’spriorbestquarter.However,thestockwasnotshieldedbythemarketdownturngivenitsweakprofitabilitymetrics,andwasdownmorethan40%inQ22022▪Thesharepriceperformancebetweenprofitableandunprofitablesoftwarebusinesseshasbecomedrasticallydifferentwithunprofitableonesbeingdownaround50%sinceQ12021,whileprofitableonesbeingdownaround2%inthesametimeperiod▪Onagrowth-adjustedbasis,lookingathowmanypointsofEV/Revenuemultiplesareawardedbyinvestorsperpercentagepointofgrowth,bothprofitableandunprofitablesoftwarecompanieswerevaluedsimilarlyatthepeaksofHoweverwiththecurrentmarketclimate,thesamegrowth-adjustedanalysisshowsthatinvestorsvaluegrowthalmost40%lesswhencomparedto2021.Althoughinvestorselectivityhassignificantlyincreased,itisatimeforunprofitablesoftwarecompaniestoprovetheirbusinessmodelsbybecomingprofitable▪Focusonprofitabilityisalsoabigemphasisintheprivatemarkets.SeasonedSaaSinvestor,BatteryVentures,hasreleasedtheirquarterlyreport,"TheCloudQuarterly:AFounder'sAlmanac",mainlyadvisingfounderstofocusontheprofitabilitycomponentofthe“Ruleof40”matrixduringtheseunprecedentedtimes,whenlayoffshavebecomemorecommonthanever5Sources:BatteryVentures,BusinessInsider,CNBC,FinancialTimes,HGCapital,TechCrunch,WallStreetJournal(asof30June2022)5ACQUIREDBYINVESTMENTBYACQUIREDBYINVESTMENTBYINVESTMENTBYACQUIREDBYACQUIREDBYACQUISITIONANDHINVESTMENTBYINVESTMENTBYACQUIREDBYINVESTMENTBYACQUIREDBYINVESTMENTBYACQUIREDBYINVESTMENTBYINVESTMENTBYACQUIREDBYACQUIREDBYACQUISITIONANDHINVESTMENTBYINVESTMENTBYACQUIREDBYINVESTMENTBYINVESTMENTBYINVESTMENTBYINVESTMENTBYINVESTMENTBYementINVESTMENTBYINVESTMENTBYINVESTMENTBYINVESTMENTBYEURONEXTIPOTakeawaysALEADINGTECHNOLOGYADVISORYANDINVESTMENTFIRM,PROVIDINGTRANSACTIONADVICEANDCAPITALullhoundsrecentSoftwareactivityMERGERMERGERANDTBYACQUIREDACQUIREDBYINVESTMENTINVESTMENTBYINVESTMENTINVESTMENTBYCEOcommentarySelecteCEOcommentarySelecteDatedprivatefinaLeadinvestor(s)cingsIssuerIssuerdescriptionAmount($m)unforSMBs0edaccessorchestrationapplicationsecuritysoftware0ourcingpayrollandtalentftware0fapointofsaleandcustomeroftware0iderofacloudbasedpayrollhumanresourceesuite0anagementandITonssoftware0ontinuousdeliveryasaareforengineeringandDevOpsteams0urcemonitoringteractivevisualisationandmetricalyticssoftware0ratorofantplatformfordigitalsationctiontrendsNOTABLESOFTWAREM&ADEALS&PRIVATEFINANCINGSnsfromQSelecteDatedM&AtransBuyerTargetTargetdescriptionEV($m)EV/LTMRevunvironmentalndlearningftware0unnectedsoftwaresystemsionsunresolutionsacilitiesenergysafetyandITassetmanagement-unpportsales,andotherunicationssoftwareunusinesscationsoftwaretomarketcompanies-untwareforycareservicesdtherapists-ryandancesoftwareresolutionsreasofsecuritycloudctureandmorecurityaresolutionsSources:CapitalIQandMergerMarket(asof30June2022),GPBullhoundintelligencectiontrendsctiontrendsGLOBALSOFTWARETRANSACTIONTRENDSobaldealmakingexperiencespullbackMAbuyoutactivitycoolsafterhotstreak$300B$250B$200B$150B$100B$50B$0MM&AVolumeBuyoutVolumeM&AdealsBuyoutdeals9008007006005004003002000Similarstoryforprivateplacements$80B$70B$60B$50B$40B$30B$20B$10B$0MCapitalinvested($bn)Volume4,5004,0003,5003,0002,5002,0001,5001,0005000MajorityofM&A/buyoutstookplaceintheU.S.andEurope100%90%80%70%60%50%40%30%20%0%0%lacementsrelativelystableacrossregions100%90%80%70%60%50%40%30%20%0%0%US&CanadaEuropeAsiaOtherUS&CanadaEuropeAsiaOtherSource:Pitchbook(asof30June2022)Note:DataincludesallSaaSM&AandprivateplacementdealsasdefinedbyPitchbookregardlessofgeography;”Other”includesAfrica,Oceania,South/CentralAmerica,andtheMiddleEastAsiaOther800ctiontrends00ctiontrendsIPOLANDSCAPEelloffsuppressIPOactivity▪SoftwarecompaniesoptedtorefrainfromgoingpublicinQ22022,acontinuationofQ12022’ssuppressedactivity▪Ongoinggeopoliticalconflictandrecessionfearsfueledbyheightenedinflationandhawkishcentralbankactivityfrightenedinvestorsandledtoabroadmarketsell-off,withtheNASDAQendingH12022down30%andofficiallyinbearmarketterritory▪High-calibercompanieshavestillbeenabletoraiseprivatefundingdespiteinvestorstighteningpursestrings,promptingthemtowaitouttheturbulenceandgopublicwhenmarketsareconducivetomoreattractivevaluationsSoftwareIPOsbyquarter998855432Q203Q204Q201Q212Q213Q214Q211Q222Q22ListingstolookforinH022+nyviewProviderofanall-in-onecollaborationplatformdesignedtodemocratisesoftwarecreationDeveloperofaweb-scaleplatformdesignedtosimplifythewaycompaniesprotect,manageandextractvaluefromtheirdataDeveloperofanenterprisesoftwareapplicationfordatawarehousinganddatalakesDeveloperofaninstantmessaging/VoIPplatformforfriends,colleagues,andcommunitiesDeveloperofanapplicationforon-demanddeliveryProviderofanapplicationforinteractivedataanalysis,enterprise-classanalytics,datadiscoveryandsalesperformanceanalysisOperatorofasocialnetworkplatformdesignedforpeopletodiveintoanythingthroughexperiencesbuiltaroundtheirinterestsProviderofanemployeemanagementplatformintendedtohelpeliminatetheadministrativeworkinacompanyDeveloperofcloud-basedsoftwaredesignedtoacceleratethehomeandcommercialserviceindustriesSources:CapitalIQ,Pitchbook(asof30June2022)Note:SoftwareIPOdatagraphbasedoffpreviousGPBullhoundreportsFebruary/March2021:ThoughSaaSvaluationsareFebruary/March2021:ThoughSaaSvaluationsarestillsignificantlyabovehistoricallevels,anewUSpresidentialadministration,inflationconcerns,andrisinginterestratescontributedtoamodestpull-backoftheSaaSIndexMarch2020:Afterabriefinitialsell-off,SaaSstocksenjoyedsignificantappreciationthankstotheforceddigitisationoftheworldcausedbythepandemiccemberTradewarwithChinaleadstosell-offofSaaSstocksalysesREVENUEMULTIPLETRENDS–LASTFIVEYEARSlhoundSaaSindexvaluationsContinuedSaaSsell-off–valuationsdroppedbelowthefive-yearmean,butwithagreaterdisparitybetweenhigh-andlow-growthSaaSvaluationsAsof30June,theMediumGrowthSaaSIndexistradingat6.1xnext12-monthrevenues,whichis29.2%lessthantheHighGrowth0x0xxxerPresent:TheCovid-19Omicronvariant,geopoliticaltension(includingRussia’snvasionofUkraine),ongoingglobalsupplychainissues,andhawkishmonetarypolicy,havetriggeredasteepsell-offacrossmarketsandgionsthatoughttechvaluationsbelowthefive-yearaverageMedian:7.2xMedian:5.7xMedian:3.1xJun'14Jun'14Jun'15Jun'16Jun'17Jun'18Jun'19SIndexEVNTMRevenuesHighGrowthMediumGrowthLowGrowthSources:CapitalIQandWallStreetJournal(asof30JuneNote:HighGrowth:>40%,MediumGrowth:15-40%,LowGrowth<15%110%100%90%alyses110%100%90%alysesGPBULLHOUNDSAASINDEXPERFORMANCESell-offcontinuestoimpactsectorperformance80%70%31/05/202210/06/202220/06/202230/06/2022 S&P500NASDAQCompositeGPBMasterSaaSIndex-IndexValue110%100%90%80%70%60%50%31/12/202131/01/202228/02/202231/03/202230/04/202231/05/202230/06/2022 S&P500NASDAQCompositeGPBMasterSaaSIndex-IndexValueSources:CapitalIQ(asof30June2022)110%100%90%80%70%60%50%31/03/202230/04/202231/05/202230/06/2022 S&P500NASDAQCompositeGPBMasterSaaSIndex-IndexValue120%100%80%60%40%30/06/202130/09/202131/12/202131/03/202230/06/2022 S&P500NASDAQCompositeGPBMasterSaaSIndex-IndexValuealysesalysesBLICSAASMETRICBENCHMARKINGrs6%42%40%37%36%35%33%29%27%26%26%26%20%17%17%12%923.423.8514.7684144%40%37%32%32%%%115%7%7%3%0.9%1%8%4%126%119%Sources:CapitalIQ,companySECfilings,andGPBullhoundestimates(asof30Jun2022);Note:1CY22E/CY21A;2(S&MLTMJun.2021/((LTMJun.2022rev.–LTMJun2021rev.)*GM%))/12;3LTMJun.2022operatingcashflow/LTMJun.2022revenue;4Asstatedincompanyfilings&earningsreleaseserygooderygoodalysesBLICSAASMETRICBENCHMARKINGGPBullhoundSaaSindex–netdollarretention--Median:125%SnowflakeUnityDatadogCloudflareTwilioOktaAsanaDocuSignSources:CompanySECfilingsandGPBullhoundresearch(asof30June2022)GPBullhoundNetDollarRetentionRanges:Goodas100%-110%,Verygoodas110%-120%,Best-in-classas120-130%,andExceptionalas>130%VeevaServiceNowEV/NTMRevenueEV/NTMRevenuealysesBLICSAASMETRICBENCHMARKINGmostimportantdeterminantofvaluationWeexaminedtheimpactofretentiononvaluationbycreatinga‘GPBSaaSScore’,definedasrevenuegrowth+FCFmargin+netdollarretention.WeobservethatcompanieswithhigherretentionaretradingatmoreattractivevaluationsinpublicmarketsxxDDatadogSnowflakeareilio140%160%180%200%220%240%260%280%GPBullhoundSaaSScoreSources:CapitalIQandcompanySECfilings(asof30June2022)2021unleveredFCFmargin%COUPLVCDSYTEMNTMVZMDOCURNGCRMWKMEPLTRFRSHMIMESMCRTSPLKPCORPWSCWDAYDDOGAPPFHCPSPTBLNDZENVXMLEMONTENBBMBLPAYCFROGSUMOWKPDDVSEMRESMTCWANNEWRWIXTWOUAYXESTCPCTYLPSNMSPFIVNZUOEVBGMDBNETCDAYLIMEEGHTQTWOSPSCBRZEECOMUDOULINTAEYEFAARXTSHOPGHTYEXTPINGNEMSOWINFAAMPLT2021unleveredFCFmargin%COUPLVCDSYTEMNTMVZMDOCURNGCRMWKMEPLTRFRSHMIMESMCRTSPLKPCORPWSCWDAYDDOGAPPFHCPSPTBLNDZENVXMLEMONTENBBMBLPAYCFROGSUMOWKPDDVSEMRESMTCWANNEWRWIXTWOUAYXESTCPCTYLPSNMSPFIVNZUOEVBGMDBNETCDAYLIMEEGHTQTWOSPSCBRZEECOMUDOULINTAEYEFAARXTSHOPGHTYEXTPINGNEMSOWINFAAMPLTWLOFPIPSNOWWKLDBXDOTDSAPBCOVEMIS TIETOBNFTRuleof40%lineSCWXalysesREVENUEGROWTHVS.PROFITABILITYOFGPBULLHOUNDSAASINDEXCONSTITUENTS%OKTAZSZSUPLDQLYSBOXAVSTNOW0.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%50.0%2022/21revenuegrowth%Sources:CapitalIQ(asof30June2022)2022EV/revenueMarketperformersarketoutperformersMarketunderperformersalyses2022EV/revenueMarketperformersarketoutperformersMarketunderperformersalysesCOMPANIESHIGHERONTHERULEOF40%SCALEAREGENERALLYVALUEDHIGHERBYINVESTORSRuleofPublicSaaScontUSPT PAYCNOWASAN NEMSHOPNEMSHOPCWANPCTYPLTRDTLAWWKESMTLAWWKESMTDSYXMPCORLEMONFIVNLVCCOUPSPSCAPPNTENBBRZESPSCAPPNTENBBRZEDVAPPFAPPFMIMEBLNDSMCRT Ruleof40%lineDOCUFROGFRSH Ruleof40%lineDOCUFROGFRSHPINGTEMNZENVPINGTEMNZENVUSERCRMMLNKAPPMSPSEMRPDQTWORNGAMPLTWLOMLNKAPPMSPSEMRPDWKLBIGCWKLBIGCPWSCZMAYXFPIPAIEMISZUONEWREVBGINTAFPIPAIEMISZUOSAPSAPBASEBASEWKMEBMBLLPSNDOTDLPSNDOTDFAASUMOBNFTBNFTINFAUPLDEYEEGHTEYEEGHTSINCHYEXTGHTRXTYEXTGHTRXTBCOVZENVTZENVWEAVWEAVECOM0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%Ruleof40%Sources:CapitalIQ(asof30June2022)$156,264$150,111$3,479$1,956$125,949$40,926$21,802$3,045$504$3,465$102,506$123,261$143,296$2,932$$156,264$150,111$3,479$1,956$125,949$40,926$21,802$3,045$504$3,465$102,506$123,261$143,296$2,932$1,937$97,903$35,997$5,959$4,634$328$2,941alysesALALLOCATIONTechgiants–showmethemoney▪Totaltechgiantspendingwasapproximately26%higherduringtheLTMtoQ22022periodwhencomparedtothesameperiodoneyearago,withslightlyincreasedoperatingcashflowsreducingthedeficitformanyofthesetechtitans▪Broadthemesincludeincreasedsharebuybacks,capex,andacquisitions,whilecompanieshardlypaiddividendsatall▪AmazonsignificantlyincreasedspendinginR&DandcapexwhileSalesforcecontinueditsbuyingspreewiththreeadditionalacquisitionsannouncedinQ22022,likelycapitalisingondiscountedvaluationsLTM(Q22022)%ofoperatingcashflow($m)1$10,711$151,902500%400%200%▪500%400%200%▪Capex▪Debt300%▪R&DLTM-1(Q22021)%ofoperatingcashflow($m)1$8,1490%100%200%300%400%500%▪Sharebuybacks▪Dividends▪AcquisitionsSource:CapitalIQ(asof30June2022)Note:Existingcashreservesallowcompaniestospendover100%ofoperatingcash1DollaramountsrepresenttotalcashspendduringtheLTMperiodcommentarycommentaryLEADINGCOMPANIESANDCEOSTRANSFORMINGTHESECTORTonyAyaz,CEOTONYAYAZCEO,SCUBAANALYTICS“We’relivinginapost-digitaltransformationerawhereprivacyisking.Manyofthetoolsonthemarketcan’tkeepupwiththisparadigmshift.TraditionalBusinessIntelligence(BI)isgoodforstaticdatasetsbutnotsousefulforreal-time,streamingdatasetsthatrequirecomplexextractionproceduresToday,customershavevariousinteractionswithbrandsacrossdifferentsystems,thatallgenerateeventsconstantly.Ifyou'retryingtostayrelevantinapost-digitaltransformationera,there’sdatacominginallthetime–andyouprocessit,thatcanimpactyourbusinesssignificantlyScubaisn’tbuiltliketraditionalBItools.Itwasdesignedforbothstaticandreal-time,unstructureddatawithano-codeUIascalableabilitytoanalysebillionsofdatapointsgenerateddaily,sothatbrandscangetunparalleledaccesstoactionableanalyticsinsi