Revisiting the “Is Software Expensive” QuestionThe current median revenue multiple for the software universe is 6.4x, which is ~17% below the long term average multiple of 7.8x. However, when looking at growth adjusted multiples, the current median is 0.48x, which is ~75% above the long term average of 0.28x (you can see this chart later on in this post in the EV / NTM Rev / NTM Growth section)! So on a pure revenue multiple basis the software universe looks “slightly cheap.” But on a growth adjusted basis, the software universe looks “super expensive.” Below is a chart that shows how growth has really trailed off the last few years. During the period where the long term average multiple was 7.8x, the median projected growth rate was 27%. The median projected growth rate today is 14%The pi

Going in to this earnings season I expected a big driver of stock price performance to be how 2024 full year estimates change pre / post earnings. Since the macro feels more “stabilized” it felt fair to assume “are numbers going up or down” to be the question most correlated with stock price performance. After a few software companies have reported we can start to look at the data behind “are numbers going up.” Surprisingly, despite the huge moves in stock price ($Palantir Technologies Inc.(PLTR)$ / $Confluent, Inc.(CFLT)$ both +30% and $Cloudflare, Inc.(NET)$ was +20% after hours yesterday), we really haven’t seen forward estimates change that much. The chart bel

If AI delivers on its promise, it may spell the end of the SaaS business model as we know it. Historically, cloud software businesses charged a recurring fee based on the number of users of their software - the SaaS model. Then infrastructure / dev tools software companies took a different approach - more of a consumption based pricing model (I’m generalizing, not all infra is consumption based). Look at $Twilio(TWLO)$ - they charge per message sent. Or $Snowflake(SNOW)$ who charges based on compute used or data stored. At the end of the day, software vendors want to align value delivered with price charged. Back to the Twilio example - let’s say I, as a solo developer, built an application on Twilio that

Q2 earnings season is now behind us. I’ll provide a more comprehensive recap later, but for now, let’s look at how the future outlook has changed after Q2 earnings. One metric I like to examine is how much companies adjust their full-year guidance. Generally, software companies follow a beat-and-raise model in their forecasts. The “raise” part reflects how much the future outlook (i.e., the guidance) changes. When we compare full-year guidance for 2024 from the Q2 call versus the Q1 call (~3 months ago), you’ll see in the graph below that, for the most part, full-year guidance didn’t change significantly. The median full-year “raise” was only 0.3%.Looking at Q2, the median “beat” (i.e., how much a company’s Q2 results exceeded consensus) was around 1.5%. So, while the median quarterly beat

Another week and software continues to grind lower. However, despite all of the carnage, there was another big winner this week! Fastly is up ~100% over the last week. The week prior, 8x8 had the big week (they were up ~70% in a week). Always an opportunity somewhere… I thought I was done talking about “is software dead” after the last couple weeks Clouded Judgement posts, but I just had more thoughts I wanted to share… I think two things are true. I think people are simultaneously under and over estimating the impact AI will have on the existing software complex. The difference is the timing. Overestimating in the short term, and underestimating in the long term. I see a lot of arguments claiming software is dead because everyone will just vibe code their own software. I don’t buy this at