Software companies pulled down their fair share of 2017’s bullish business climate. The new 2018 Annual Report by M&A advisors Software Equity Group details the health of the software sector, including year-over-year growth across all but 2 of the 21 product categories and verticals studied.
SEG maintains two software indices: the “SEG SaaS Index” which tracks 66 public software companies with subscription- and/or transaction-based models, and the “SEG Software Index” that focuses on 99 software providers with revenue derived from perpetual licenses or annual maintenance.
A comparison of company performance between the two indices underscores the improving performance of SaaS and cloud-based software companies. Consider the following SEG insight on next-generation vs. traditional software providers:
SaaS Company Performance – 2017
- The SEG SaaS Index that monitors publicly-traded SaaS companies shows they continue to grow in size, posting median TTM revenue of $248.1M in 4Q17 and a 27.5% YOY increase from last year’s top line mark of $194.6M.
- Public SaaS companies continue to edge closer to GAAP profitability, posting a median EBITDA margin of -5.4% during the fourth quarter of 2017.
- Gross profit and net income margins have improved greatly in recent years for SaaS companies.
- IT sector SaaS companies posted the highest revenue growth during Q4.
Traditional Software Company Performance – 2017
- On a quarterly basis, the SEG Software Index shows public software companies posted median TTM total revenue north of $1.0B, a 12.3% increase over 4Q16’s $923.3M revenue. The median TTM growth rate has hovered around 7% over the past five quarters. Over 60% of public software companies posted TTM revenue growth of 10% or less in 4Q17.
- Public software companies posted a median EBITDA margin of 17.8% in 4Q17, a slight decrease from 4Q16’s 18.8% median, though still a very healthy margin. Nearly 80% of the Index were profitable on a GAAP basis in 4Q17.
- Gross profit remained constant across traditional software companies.
- Sales and marketing expenditures are experiencing year-over-year growth.
- The IT sector of traditional software companies is also demonstrating the highest revenue growth during Q4.
Click here to access Software Equity Group’s full report on 2017 software company performance and M&A activity.
Clare Christopher is editor of SandHill.com.