Let's examine the health and well-being of SaaS businesses during COVID.
The Good
1. Attracting more users
By providing cheaper or even free services for a few months, many SaaS companies are attracting more users than usual on their platforms.
2. Business continuity
Most SaaS companies are able to maintain a large portion of their business activities running despite COVID as Work From Home isn't a roadblock to their workforce or core business activities.
3. Growth of Slack and Zoom
Let's take two companies that have REALLY done well during this crisis.
Zoom's monthly user base has skyrocketed by 20X. Even though a lot of these are non-paying users, the revenue growth is phenomenal. The privacy issues are a concern which - if fixed - can lead to further growth and adoption.
Slack's net paying customers have shown over 80% growth in Q1 of 2020 and they continue to grow.
Moreover, these two businesses (along with Microsoft Teams and Gooogle Hangouts) are now the foundation for other businesses to function.
The Bad
1. CHURN
With budget cuts the norm in numerous companies across the globe, that will translate to software cuts in most cases. Therefore, many SaaS companies are and will experience churn and contraction in their ARR which will put immense pressure on liquidity and survival of the business.
2. Lagging effect on revenue
As most SaaS companies bill and collect money upfront, the effect of an economic downturn will be lagging and will become evident only a few months into the future.
The Ugly
Inability to claim wage subsidy
The Final Word -
When the dust finally settles, the companies that have managed their cash prudently and have strong business fundamentals will be the most likely to survive. That seems pretty obvious and applies to all businesses. But sometimes the obvious is forgotten, especially in the crazy world of SaaS.
References:
1. https://seekingalpha.com/article/4336336-saas-valuations-covidminus-19-edition-zoom-is-literally-off-charts
2. https://thelogic.co/news/covid-19-roundup-counting-to-30-per-cent/?utm_source=The+Logic+Master+List&utm_campaign=d44658022a-Daily_Briefing_2020_Apr8_1&utm_medium=email&utm_term=0_325d5d3b52-d44658022a-275641105
The Good
1. Attracting more users
By providing cheaper or even free services for a few months, many SaaS companies are attracting more users than usual on their platforms.
2. Business continuity
Most SaaS companies are able to maintain a large portion of their business activities running despite COVID as Work From Home isn't a roadblock to their workforce or core business activities.
3. Growth of Slack and Zoom
Let's take two companies that have REALLY done well during this crisis.
Zoom's monthly user base has skyrocketed by 20X. Even though a lot of these are non-paying users, the revenue growth is phenomenal. The privacy issues are a concern which - if fixed - can lead to further growth and adoption.
Slack's net paying customers have shown over 80% growth in Q1 of 2020 and they continue to grow.
Moreover, these two businesses (along with Microsoft Teams and Gooogle Hangouts) are now the foundation for other businesses to function.
The Bad
1. CHURN
2. Lagging effect on revenue
As most SaaS companies bill and collect money upfront, the effect of an economic downturn will be lagging and will become evident only a few months into the future.
The Ugly
Inability to claim wage subsidy
Canada Emergency Wage Subsidy (CEWS) Program provides a 75% wage subsidy to
employers that see a drop in revenue of at least 15% in March 2020 and 30% in the
following months. That is a great move from the Government to protect layoffs and
businesses.
employers that see a drop in revenue of at least 15% in March 2020 and 30% in the
following months. That is a great move from the Government to protect layoffs and
businesses.
However, many SaaS companies would struggle to qualify as they are more likely to be hurt
by a reduction in future business than immediate revenue loss. While many firms may have
significantly more revenue than the previous year, they’ve often invested even more in people,
engineering and R&D to prepare for even more sales which are unlikely to materialize.
by a reduction in future business than immediate revenue loss. While many firms may have
significantly more revenue than the previous year, they’ve often invested even more in people,
engineering and R&D to prepare for even more sales which are unlikely to materialize.
The Final Word -
When the dust finally settles, the companies that have managed their cash prudently and have strong business fundamentals will be the most likely to survive. That seems pretty obvious and applies to all businesses. But sometimes the obvious is forgotten, especially in the crazy world of SaaS.
References:
1. https://seekingalpha.com/article/4336336-saas-valuations-covidminus-19-edition-zoom-is-literally-off-charts
2. https://thelogic.co/news/covid-19-roundup-counting-to-30-per-cent/?utm_source=The+Logic+Master+List&utm_campaign=d44658022a-Daily_Briefing_2020_Apr8_1&utm_medium=email&utm_term=0_325d5d3b52-d44658022a-275641105
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