We examine the performance of publicly traded SaaS companies during the recession and summarize with the findings of the SaaS Capital research report.
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SaaS Capital, a lender to software companies, put out an excellent research piece which examined the performance of publicly traded SaaS businesses during the recession. The 3-page research report is well worth the read, and we decided to summarize some of the findings. Below is the data and under that are observations.
SaaS Companies Grew
SaaS Capital defines the recession as the period from Q1 2008 to Q2 2009. Even during the recession, the median of the SaaS companies still managed to grow, albeit at a slower pace.
Prior to the recession, the median year over year growth was 42%. During the recession, growth slowed to 12% year over by the Q2 2009. It is truly impressive that these businesses were able to grow while the overall economy suffered.
Operating Margin Was Steady
Operating margin averaged -1% each quarter prior to the recession and -2% during the 6 quarters of the recession. Impressively, operating losses didn’t blow out. However, this is unsurprising since these companies grew through the recession, which likely limited any increases in spending.
Cash Burn Was Heavy
Even though the operating margin was steady, it certainly wasn’t an easy period. Prior to the recession, 6 of the 16 companies were unprofitable. In comparison, during the recession, the number of unprofitable public SaaS companies increased by as many as 11 companies.
Operating profit in the 4 quarters prior to the recession averaged $335mm. Meanwhile, the recession operating profit averaged -$705mm each quarter. The only way any company could weather a swing that large is to have significant access to liquidity (cash on hand and credit lines).
In summary, as SaaS companies, it’s not unreasonable to expect to grow through the recession, but recognize that the growth will be much more expensive to achieve. Make sure you have significant cash buffers and access to liquidity at all times — none of the publicly traded SaaS businesses went bankrupt but that’s only because they were able to access cash as operating profits swung heavily into the red.
