Software Equity Group keeps a finger on the pulse of the software market.
Following a strong year in 2017, public markets continued to surge through the first nine months of 2018. Investor sentiment was strong, and the market reached record high valuations. In October, however, the public markets took a turn and softened until December. Some contributing factors(1) have led to a shift in investor sentiment and led to an uneasy market, including various geopolitical issues (i.e., tariff wars with China, slowing of foreign markets in Europe, Japan, and China), events in Washington (i.e., the government shutdown), and the Fed’s outlook and activities (2018 interest rate hikes and slowing of quantitative easing which will naturally have a negative pressure on the markets).
Yet, this correction does not point to a recession but rather a deceleration in the public market(1) back to healthy levels. This is evident in the performance of the stock market through the first half of January; markets have sustained this level despite lower investor sentiment.
In addition, there are many indicators(2) that point to a continued healthy economy including:
• Unemployment Rate: Unemployment rate in the U.S. was 3.9% in December 2018, compared to 4.1% in December 2017.
The unemployment rate is expected to improve in 2019.
• Average Earnings: U.S. Average Weekly Earnings was $948.6 in December 2018, a 3.2% increase from December 2017’s $919.1.
• GDP: In the third quarter, U.S. GDP was $20.66T, an increase compared to 2Q18’s $20.41T. GDP growth rate is expected to decrease in 2019, yet this falls in line with the natural deceleration.
This market deceleration is captured in 4Q18’s decreased valuation in SEG’s 2019 Annual Report. Please enjoy the report and feel free to reach out with any questions or to discuss the broader software industry
Click to view the full SEG 2019 Annual Report
Software Equity Group provides unparalleled M&A advisory services for emerging and established software companies.