…TTM revenue growth appeared to have little impact on the median EV/Revenue multiple of the software product category.
This excerpt is from our complimentary Q1 2012 Software Industry Financial Report which can be downloaded here: http://www.softwareequity.com/research_reports.aspx
Public software companies in eight of our software product categories achieved a median EV/Revenue multiple of 3.0x or higher in 1Q12. The Systems Management category posted a whopping EV/Revenue multiple of 5.9x, led by companies who are spearheading the cloud revolution, namely: SolarWinds (12.9x EV/Revenue), VMWare (9.9x), RedHat (7.6x) and Citrix Systems (5.9x). Over the past four quarters, EV/Revenue multiples in the Systems Management category have ranged from 5.2x to 7.3x.
Coming in a distant second, the Vertical – Finance category closed 1Q12 with a median EV/Revenue multiple of 3.8x, no doubt bolstered by the category’s strong EBITDA margins. The Healthcare category finished 1Q12 with a 3.2x median EV/Revenue multiple, down from 4.0x in 1Q11 as a consequence of legislative and regulatory uncertainty.
Interestingly, TTM revenue growth appeared to have little impact on the median EV/Revenue multiple of the software product category (Figure 11). The product category with the highest TTM revenue growth rate (Security), finished 1Q12 with a median EV/Revenue multiple of 3.2x, while the category with the lowest TTM revenue growth rate (Financial & Accounting), closed 1Q12 with a modestly lower median EV/Revenue multiple of 2.8x. Overall, comparative market valuations among different software product categories did not vary widely: three out of four categories were within 25% of the median EV/Revenue multiple of the SEG Software Index.
Only four product categories improved their median EV/Revenue in 1Q12 from a year earlier: Engineering & PLM, ERP, Gaming and Vertical (Miscellaneous). The Vertical (Miscellaneous) product category had the highest YoY jump in median EV/Revenue, finishing 33% above 1Q11, led by insurance industry focused Guidewire Software (5.5x EV/Revenue), and public sector focused Tyler Technologies (3.7x EV/Revenue).
The Billing & Service Management product category experienced the largest YoY decline in market valuation. The category has been a perennial laggard and the majority of companies in the category are struggling to reinvent themselves. A lone standout is Synchronoss Technologies, which posted an EV/Revenue multiple of 4.9x, nearly four times the product category median. With a TTM revenue growth rate of 38%, two times higher than the category median, Synchronoss’ provides best of class solutions to service providers struggling to manage and synchronize the barrage of mobile devices connecting to their networks.