PVC SaaS Index™ | Q2 2024 – Non-AI Revenue Slowing and Budget Pressure

Practical Summary:

  • The Q2/24 PVC SaaS Index™ trades at 6.3X EV / LTM revenue, well below the 5-year average of 11X and the 10-year average of 9X.
  • Q1 earnings were very weak for mid-cap SaaS companies, although they were good for “hyperscalers,” especially Azure.
  • The median revenue growth rate for SaaS companies was +18% YoY in Q1/24, down from >30% in 2020-22.
  • Over half of SaaS companies guided Q2 revenue below consensus, the worst performance since Q2/20 (COVID).
  • Enterprise tech budgets appear to be bifurcating – more for AI, less for the rest.


This post is an update in a quarterly series of posts that tracks the PVC SaaS Index™, a basket of publicly traded US-listed SaaS companies.

Software as a Service (“SaaS”) has been around longer than the cool new cloud. The SaaS category shares some aspects of cloud computing, but its focus tends to be clearer: SaaS is the delivery of software applications over the Internet from a server hosted by the SaaS provider somewhere far away.

The first big SaaS IPO was Salesforce (NASDAQ: CRM) in 2004. Almost 20 years later, we have 98 pure-play SaaS/cloud companies in our proprietary PVC SaaS Index™. These companies all trade on the NASDAQ or the NYSE. They derive most of their recognized revenues from long-term contractual commitments (12 months or greater) and recognize those revenues periodically over the life of those contracts.

In this index, we have removed several SaaS companies that have gone below $1B market cap, essentially becoming broken IPOs or “zombies” in the public markets, with low liquidity, high volatility, and uncertain public company prospects, leaving us with 98 publicly traded SaaS companies in the US.

The figure below shows the historical EV / TTM (“Enterprise Value” to “Trailing Twelve Months” of revenue) going back to 2015.

Figure 1. Historical SaaS Valuations
Source: CapitalIQ; PVC analysis

The multiple of 6.3X in Q2/24 is exactly the same as the median SaaS multiple in late 2016. The top quartile of SaaS companies (those whose multiples are higher than 75% of the group) are now at about 10X, higher than they were back then, when the elite group was around 9X. Multiples of that top tier have fallen by about 65% from the peak set during the period from Q4/20 to Q2/21.

A Look Back at Q1 Earnings

Q1/24 earnings season for cloud businesses is now behind us, with most companies reporting earnings between April 24 and June 10. The summary below is based on my review of earnings results for over 60 SaaS stocks, which represents a majority of the SaaS companies in our index. 

Mid-Large Cap SaaS Results: Rough Seas

For mid-cap SaaS companies, Q1/24 results were very weak. We saw misses versus guidance that were nearly as bad as the pandemic quarter of Q2/20, when the world was ending and zombies were at our doorstep.

Perhaps these misses were impacted by broader macro slowdown in the world’s major economies. In the US, real GDP growth in Q1/24 printed at just 1.3% annualized growth from the prior quarter. In 2023, the US economy was humming along at just over 3% growth. Several other major markets also entered into recessions recently, notably Germany, the UK, and Japan in 2023, and possibly Canada in early 2024. 

Misses are also more likely as enterprises carefully manage their budgets and focus on tech / IT spend that will further their AI roadmap while pulling back on everything else (more mundane things like workflow improvements, accounting and legal operations, payments, and even cybersecurity). As CFOs have started to rethink their budgets, the pullback in software spending that doesn’t directly drive the AI roadmap has clearly affected the growth rates of many SaaS companies, where median YoY revenue growth dipped into the high-teens, down from >30% over the past 3 years. 

When public companies report earnings, analysts typically look at several factors that will affect the trading price of the stock:

  • Revenue growth
  • Forward guidance
  • Free cashflow generation
  • Profitability, both for the business overall and on a single sale as measured by things like gross margin and cost of acquiring a customer (CAC)
  • Net revenue retention (calculated by taking the annual recurring revenue of a cohort of customers from a year ago and comparing it to the current annual recurring revenue of that same cohort

Probably the most important factor is the company’s historical revenue growth, followed closely by the prospective growth of the business as determined by the company’s revenue guidance. Figure 2 shows how much revenue growth has decelerated in the past 5 quarters.

Figure 2. Median Growth Rate YoY in the PVC SaaS Index
Source: CapitalIQ; PVC analysis

When you hear the term “guidance,” it refers to the business outlook that a company provides, typically one quarter ahead. When a company provides guidance that is greater than consensus estimates of the equity analysts who cover the stock, it’s always a good sign because it suggests improving business momentum and a level of confidence that the business will perform better than previously expected.

Guiding above consensus is what’s known as a “raise.” When you hear the phrase “beat and raise,” the beat refers to beating current quarter’s expectations (what we discussed in the previous section), while the raise means raising guidance for future quarters.

On the other hand, when a company guides below consensus, it suggests a weakening in the business versus what was previously disclosed. 

The figure below tracks the percentage of cloud companies that delivered below consensus revenue guidance, which hit a multi-quarter high in Q2/24.

Figure 3. Earnings Look Back: PVC SaaS Index Companies Revenue Guidance vs. Consensus
Source: CapitalIQ; PVC analysis

Hyperscalers: Benefiting from AI?

For the hyperscalers such as Amazon / AWS, Microsoft / Azure, and Google Cloud, the band played on.

The figures below show that during the easy money “Everything, Everywhere, All At Once Bubble” in late 2020 and 2021, these companies experienced a significant revenue pull-forward as enterprises spent big on digitizing their work processes and pushing software into the cloud.

AWS has been the market leader here. Their top-line growth has decelerated into the high teens, but that’s still an impressive feat on a revenue run rate of over $100B a year. AWS appears to be just slightly below their trend line prior to the pandemic, despite a Q1 acceleration.

As of Q1/24, Azure appears to be slightly above their prior trend line, now growing above 30% annually and taking market share (their growth rate is fully 10 points ahead of the market) with a run rate approaching that of AWS.

Google Cloud Platform data has been omitted here because Google doesn’t disclose this segment cleanly; they include GSuite revenues in their segment reporting. 

This trio of cloud Goliaths combined accounted for about 70% of the $75B global cloud infrastructure services market during the quarter.

Figure 4. Microsoft Azure Revenue Growth by Quarter
Source: Statista; PVC analysis

Figure 4A. Microsoft Azure Change in Quarterly Revenue
Credit: Jamin Ball, “A Look Back at Q1 ’24 Public Cloud Software Earnings,” Clouded Judgment, June 19, 2024.

Figure 5. AWS Change in Quarterly Revenue
Source: Statista; PVC analysis


Between Q3/20 and Q4/21, the revenue multiples of SaaS companies rocketed to all-time highs, fueled by pandemic-era fiscal and monetary stimulus primarily from the US and the ECB, peaking around 18-19X in late 2021. By mid-2022, multiples had dropped to 6-8X EV / TTM revenues. As of Q2/24, they continue to trade at the low end of this range. These multiples are below the 5- and-10-year averages for SaaS multiples, which are around 9-11X.

Q1/24 earnings season is now behind us and a review of the earnings reports for most of the companies in our PVC SaaS Index suggests that a significant slowdown in SaaS revenue growth is underway. Throughout 2021 and well into 2022, SaaS companies were growing revenues at >30%, but over the past three quarters, median growth rate in our index has been around +18% YoY.

An extraordinarily high percentage of SaaS companies also guided Q2 revenue to below consensus. As a result, the stock prices in the PVC SaaS Index are down 13% over the past 3 months even as the NASDAQ and the S&P 500 climb to new heights.

That slowdown may be partially due to a macro slowdown in the US (where GDP growth in Q1 fell to an annualized rate of 1.3%), as well as in major markets for SaaS companies (Germany, Japan, and the UK all experienced mild recessions in 2023, and Canada narrowly avoided one).

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