SaaS and cloud stock valuations continue
Maybe you have I missed it, but amid the current M&A pandemic political election and disinformation news cycle we are in this week, SaaS and cloud companies have set new records in the public market.
Yesterday the Bessemer-Nasdaq Cloud Index closed at 2,035.54, a new record for the basket of software companies. And today the index passed the 2,040 mark before losing some ground.
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For our purposes, it is important that software companies with a good portion of the Q2 profit cycle not only maintain their profits from the beginning of the year, but also manage to increase them, albeit on a modest scale. Of course, widening the valuation during the winning season could still lead to slightly falling multipliers. As companies grow and their stocks gain value more slowly, their value for money can lose ground.
Regardless, for our purposes, it is noteworthy that recent gains in the public market are not diminishing. Tech valuation hikes helped major US indices lose ground earlier this year, and second quarter earnings were a potential threat to past progress. So far, the income-related dents have been few and far between.
So what's up? Why are SaaS and cloud stocks doing so well? Based on notes from two VCs – Jamin Ball from Redpoint and Mary D’Onofrio from Bessemer – we can resolve the recent rating highs.