SaaS isn't that old.
There were only 17 public SaaS companies prior to the start of the last recession (2008). One of those companies, Omniture, was acquired by Adobe in 2009, but the other 16 all remained in business and independent through the downturn and into the recovery.
Quarterly revenue and operating expense data has been gathered on those companies for 2006 through 2011. This time period provides performance trends for a couple of years prior to the mid-2008 crash, through the recession and then a couple of years into the expansion.
Key takeaways are as follows:
- Overall: The SaaS model is resilient to economic downturns. No company became insolvent or declared bankruptcy, and actually, over 80% of the companies continued to grow through the recession and were able to achieve profitability in fairly short order
- Growth: The decline in growth rates was substantial, from 40% on average just prior to the recession, to 10% by the time it ended. Some of this decline follows the natural growth curve of a maturing SaaS business, however, the recession essentially put a kink in that curve which then rebounded to a more normal level of 30% a few years after the recession ended
- Profits: The impact of the recession on the bottom line is less clear. These companies were generally trending toward breakeven prior to the recession and continued on that path during the recession. It is important to note, however, that most of these businesses had relatively recently completed their IPO and had strong cash positions (as does LVT currently). They could generally afford to grow their way into profitability as opposed to cutting staff
As a concentrated small-cap investor, I have approximately 30% of my total equity portfolio in LVT with an average entry point in the 20s. I think the next 24 months will return LVT to a new all-time high for the share price.
Keep up the great work Karl and team,
T.E.P.
