After a heated run, SaaS and cloud stocks fell sharply during normal Monday trading.
According to Bessemer's cloud index, which follows category monitoring, public SaaS and cloud stocks have dropped by about 6.5% today, a serious blow to the value of some of the world's most valued companies, measured by multiples of the industry's average revenues.
After recovering all COVID-19 losses earlier this year, SaaS and cloud stocks continued to rise, reaching new all-time highs on a regular basis. But the earnings season is beginning, which means that the value of modern digital software and infrastructure companies will soon be tested against the results of the second quarter, results that were fully recorded during the global pandemic.
To hear the bulls - both private and public - tell the story, COVID-19 and the resulting disruptions in the workplace have provided software companies with a huge advantage. That is, current and future customers have fundamentally changed their procurement models and will need more software solutions faster than previously expected. (Stay tuned to The Exchange for more information on this later in the week.)
The thought that there were more and more better customers coming for SaaS and cloud companies made them relatively safe havens in otherwise turbulent public markets; while other industries had uncertain demand curves, thought went on, software companies were pushed forward by an accelerated secular shift.
Today, however, the broader markets have slipped from their early days' strengths while SaaS and cloud stocks have fallen sharply. Previous patterns in investor behavior have not held up, in other words.
Why it brought such high sales today is unclear. No longer, in fact, the reasons for the earnings of the previous days were clear at the time. Profit taking? Rotation to other sectors? Whatever you want to attribute to the day's decreases, you can stay true.
For our purposes here on ProWellTech, the drop in stock prices of public software companies acts as an anti-signal for late-stage valuations in SaaS startups and a general advantage over venture capital investors making early-stage bets. in the field. Of course, one day the game doesn't change. But several days of heavy losses could begin to change sentiment and the days when the shares of modern software companies drop by 6% are few and far between.
Earnings are next, but for many companies in the SaaS and cloud world, reporting their results has become easier. When expectations drop, everyone loses some concern, right?
