Data Viewpoint

HFS Data Viewpoint: Emerging Tech leaders: Update your roadmaps and aim high to take advantage of this hot investor market

March 1, 2021

 

  • Conventional wisdom has it that tech company valuations equal single digit multiples of their revenue. With strong elements of recurring revenue and good growth potential, that can rise to low double-digits. But these are not conventional times. Today we see some multiples out-strip the 2000 tech bubble when ratios peaked at an average close to 50:1.
  • Snowflake (140:1) showed which way the wind was blowing in 2020 as the economic storm of the pandemic forced easy-money policies from central banks. Interest rates tumbled. When money gets cheap, assets tend to get expensive. Investors are betting on future cash flows offering a better return than the present. Right now company cash-flows may be challenged, but the markets are flush with low-cost cash. So Snowflake continues to grow in value – with a market cap in the region of $83.4b in February 2021, and cloud data platform Databricks – with (fast-growing) revenues of $425m – enjoyed a $28b valuation when it raised $1b early this year.
  • WalkMe – the digital adoption platform – is intent on going public on the Nasdaq in Q3 this year with a $4b valuation being reported by CalTech. Its annual revenues have been estimated at $130-$140m – pointing to a Price-to-sale ratio (PSR) ~28.5 – more than twice that of Salesforce, for example.
  • It remains to be seen if the lure of future cash-flow riches will be enough for the market to meet UiPath’s current out-there valuation – circa $35b – on revenues of $400m (a PSR of 87.5) if it stays on track for IPO later this year.

The Bottom Line. Emerging Tech company leaders must get their rapid-growth plans in place to take advantage of a hot market for investment.

Cheap cash isn’t going away any time soon. Investment community leaders recommend watching one-year treasury yields for a steer. According to Union Street Ventures “When the one year treasury yield gets back above 2%, we are leaving the easy-money era.” The data shows we aren’t close to that. Add this to the brilliant fit with digital demand that has been accelerated by the pandemic, and OneOffice emerging tech companies with serious ambitions must act now to update their roadmaps and set even greater goals to take advantage of the cash available. It is time to accelerate to genuine scale.

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