This morning we’re back to annual recurring revenue (ARR), a metric that modern software companies love to report. It’s a forward result, a calculation of the amount of subscription revenue a startup can expect on an annualized basis. If your company did $5 million in monthly subscription revenue in July, you have $60 million of annual recurring revenue.

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The prominence of ARR makes it a critical concept to understand if you track quickly-growing private companies, and doubly so if you care about tech startups. They’re mad for the stuff. In that vein, I asked startups — tongue in cheek, mostly — to send in their ARR growth from the first half of 2019 (H1 2019) compared to the same period of 2018.

A few people did, which is fun. We’ll share those results first, and then put them into context using some public earnings results from yesterday.

Startup Results

You can still send in your H1 2019 ARR growth, as I’m accepting emails all weekend on the matter. So feel free to mail in your brag or confession to alex@crunchbase.com. We appreciate the clarity real numbers bring. Candor is good!

In that vein, here’s what was sent in:

• wrote that its “growth rate in ARR from H1 2018 to H1 2019 was 691 [percent],” which is quite good. We can presume that Uselytics didn’t have the World’s Largest revenue base at the start of 2018, but putting up nearly 700 percent growth is impressive. That’s a high watermark, frankly.
• wrote in, saying that it had “50 [percent] YOY growth rate which we just released today,” including a link to . Given that we specifically requested H1 2019 ARR growth over an H1 2018 result, we’re presuming that this metric fits the ask. Signal Vine has according to Crunchbase and is based in Virginia.

A 50 percent growth result, mind, isn’t slow. From a reasonable revenue base, that can be an impressive result. (Hold onto that number until we get to Okta’s details.)

I’d like to see more companies share more metrics, as it would help demystify the startup world some and reduce the stress that top-decile numbers can bring. Everyone in the startup world hears about the companies that are growing like hell, but fewer folks hear about startups that are merely doing well.

Now, let’s put our two startup numbers (more here, mind) into context.

Earnings Reports

Yesterday brought a raft of SaaS earnings to the public, with and and reporting, among others. Results among the ARR-creating firms were a bit mixed. Let’s get an overview of each result set, quickly.

I spoke with Okta’s co-founder and COO after the company reported its results, but before its earnings call. The company revenue growth of about 50 percent, rising sales and marketing spend, as well as minor increases to its net and operating losses.

Kerrest described the results as in-keeping with the firm’s vision for its future that it set a few years back. Okta has plenty of cash and generated around $20 million in operating cash flow in the first half of calendar 2019. And, the COO told Crunchbase News that the size of its largest 25 contracts in the second quarter of 2019 was twice as large as the same result from a year ago.

Shares of Okta are off about 6 percent this morning. Why, is the question. I’d reckon that Okta’s somewhat modest projection for sequential-quarter revenue growth is the issue.

Box, in contrast, is up a point this morning after far more modest revenue growth. But in contrast to Okta, which has seen its share price appreciate in recent quarters, Box is trading at its lowest levels since late 2016. So there’s some mismatch in context for the two companies’ earnings results.

Note, however, that the faster-growing company has had better recent public market results. ARR growth is still investor catnip, even this far into the bull cycle.

The growth point was welcome to Zuora investors this quarter, with the SaaS firm’s SaaS-focused product better than expected forward revenue guidance. That boosted growth expectation sent, and recent results, sent Zuora’s equity up over 6 percent this morning.

Summing quickly since this post has gone on longer than I meant it to, startup ARR growth rates are generally faster than those of their public counterparts. But the same mechanics and tension between growth, profit, and valuation work on both sides of the public-private divide.

Perhaps each earnings season we can get a few startups to disclose some of their performance to go along with our regular, summary glance at public company results.

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Pretend you are a SaaS company. And you have a pretty ok valuation. Nothing crazy, mind, you aren’t going to be worth as much dollar-for-dollar of revenue as say, or even will be once it debuts. But you’re a healthy SaaS company with a brand and a publicly traded stock.

Good job, it’s hard to reach this point. Most SaaS companies fail far before, so you’re a survivor. And you are worth a few billion dollars. That makes you a success as well. There have been articles written about you. Maybe your CEO has written a book. Or been on a hundred stages.

But then something bad happens. In one day, oneÌýmoment, the stock market cuts your valuation by double-digit percentage points. It’s brutal, harsh, and a surprise. Things had been going so well!

Putting our little game aside, this has actually happened three times this week. Let’s explore why. The lessons here are warning signs for startups. This is what you don’t want to do once you go public.

Box, Zuora, And Pivotal

You’ve heard of the three companies: , , and .

, Box’s CEO, is a famously active executive which helped make his company far better known than it otherwise might have been. And that’s not a diss, nearly no one can make enterprise productivity and file storage hot. Levie actually pulled that off during the later-quarters of his company’s pre-public life.

Zuora is a stranger cookie. The firm is a SaaS company that powers SaaS companies. And that’s jolly good, really. The firm is a veteran of its space, and while it might not be as well known outside of tech as Box and Levie, it’s a name inside of the industry.

And Pivotal is a company that helps other companies use and manage clouds. As fewer companies want to build out their own server footprint, companies like Pivotal help firms use the cloud more intelligently. At least, that’s the idea.

So, what happened to each of our companies? Here’s the scorecard of their respective share prices after their results came out:

• Zuora: -29.7 percent on May 31 2019
• Box: -14 percent on June 4, 2019 (before recovering in later trading)
• Pivotal Software: -41 percent on June 5, 2019

We’re keeping Box as an example even though it recovered somewhat quickly as the initial market response to its earnings report meets our criteria. Here’s what each company did to garner the shocks, according to contemporaneous coverage:

:

The San Mateo company’s stock dropped [to] $14.72 after it said it expects revenue for 2020 to be between $268 million and $278 million — short of the $292 million expected by Wall Street analysts.

:

Box lowered its outlook for the year, leading to a sharp drop in the stock price. Box said it expects revenue for full year fiscal 2020 of between $688 million and $692 million, well short of the average analyst estimate of $702 million, according to Refinitiv.

:

Pivotal […] lowered its full-year revenue guidance and now expects sales of $756 million to $767 million, well below the Refinitiv consensus estimate of $803 million.

The theme is pretty simple. If you are a SaaS company that has long been valued on a hybrid of revenue quality (high-margin, recurring revenue) and growth, losing one of your two arguments in favor of your valuation is painful. To see three of these in such quick succession underscores the situation; this can happen to anyone, regardless of where they operate in the SaaS universe.

Illustration: .

On Nov. 28, , an enterprise-focused cloud storage and productivity company, its fiscal third quarter, 2019 earnings after the bell. The Bay Area-based company beat expectations regarding revenue ($155.9 million, versus $154.6 million anticipated), and per-share losses ($0.06 adjusted, versus $0.07 anticipated).

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Shares of Box were up during the day before the report and in after-hours trading.ÌýBox also raised the top end of its forecast for its current fiscal year (2019) “to $609.2 million, from $608 million,” . And its CEO that the company is on itsÌýway to “$1 billion in revenue.”

Notably, Box isn’t alone in seeing its value appreciate. The surprisingly dynamic Bessemer Cloud Index that was recently remade into a daily ticker shows a similar rebound in cloud stocks in recent days. The Cloud Index fell into the 780s (it started at 1,000) in the middle of November, before rebounding to nearly 890 before the start of trading today. That’s quite a jump in about 10 calendar days.

So, after a somewhat dispiriting decline that matched what other stocks in the market were doing, more or less, cloud is nearly back to where it was earlier in the year. Which is to say a bullish position.

So What?

Why are we looking at a public company’s earnings report, and an index of public cloud companies? After all, we focus on private companies here at Crunchbase News. We are examining Box as it’s an important example of an SaaS startup that raised lots during the unicorn era and went public on the strength of its recurring revenue growth, rather than its profitability. The firm has since started generating cash quite often (measured quarterly) and expects to turn in non-GAAP per-share profit in the period roughly aligning with calendar Q4.

So, it makes for a good example. If Box does normal SaaS things, and the markets bid its shares down, it’s an indicator of where sentiment is heading; that impacts private companies as public comps impact private valuations.

The same principle applies to the basket of cloud stocks we mentioned before. If they fall sharply, private investors take note that public investors are revaluing the sort of company that they are putting capital into; if analogous stocks go bearish, startups grow fur.

So! All that said, let’s think about what Box is worth today, compared to its current revenue. We’ll get a workable revenue multiple out of the exercise, which we can then use as a general metric for thinking about what sort of recurring revenue modern software companies (which nearly all uses software-as-a-service as a business model, like Box) need to grow into to make their trailing valuations fit.

Cool? Great.

Box’s revenue figure doesn’t break out recurring incomes (its core products) from non-recurring services income. As such, we generally treat its revenue as a single lump when we want to calculate a recurring revenue figure. This distorts the resulting figure somewhat, but don’t let it worry you, we’re shooting for close here, not exact.

With $155.9 million in top line, our analog for Box’s annual recurring revenue figure comes to $623.6 million. Box was worth $2.57 billion before the start of trading today,Ìý. Simple division gives us a current ARR multiple of 4.12.

That’s a somewhat low multiple, compared to other companies and figures that we have seen this year. However, with Box growing just over 20 percent year-over-year in its most recent quarter, the company is likely paying a revenue-multiple tax. The faster your ARR growth, mostly, the higher your revenue multiple will be.

Returning to our notes on Box’s public market performance, Box is trading lower than it did at the start of the year, and far under its early-summer highs. If that is attributable to its slowing growth I can’t say for sure, but I suspect it’s at least a few pieces of the puzzle. The lesson in this earnings report is that growth remains as critical to SaaS valuations as it has been; Box’s slowing growth rate’s impact wasn’t sufficiently erased by rising profitability at the company. Its value has therefore fallen in revenue-multiple terms.

And that brings me to my final point. I’ve thought about retiring Box as our regular ARR benchmark a few times, mostly because Box is now so much larger than private market SaaS companies that its maturity makes it an increasingly poor comp. But what we didn’t have, until recently, was something good to use in its place.

But the new Cloud Index probably fits the bill, even though it doesn’t provide similarly granular multiples. Still, given that it is a basket of SaaS stocks, it’s probably a healthier way to stack public sentiment against private companies.

So, I hereby commit to not covering Box’s next earnings report, at least here. It’s probably no longer sufficiently pertinent.

Illustration:

What went wrong for the SaaS bellwether? It’s worth taking a moment to understand.

As regular readers will know, Box is more than just another SaaS company. It serves as a decent benchmark for maturing SaaS companies, and also for the bet that venture capitalists made far earlier in the current boom on companies of its ilk.

Box rode the of growth that came to popularity earlier in the unicorn era.

Let’s take a minute to scroll through the good and the bad from Box’s quarter and work out what might be the matter with its shares.

Results

Box reported revenues of $140.5 million and billings of $116.6 million. The firm’s GAAP net loss (loss inclusive of all costs) came to $36.6 million in the fiscal period.

The firm’s provided adjusted metrics include its non-GAAP operating loss of a slimmer $9.2 million deficit. Staying with augmented metrics, Box’s adjusted earnings per share came to negative $0.07.

What was expected? MarketWatch’s :

“Analysts surveyed by FactSet had estimated adjusted losses of 8 cents a share on revenue of $139.6 million. For the second quarter, analysts model adjusted losses of 7 cents a share on sales of $146.1 million.”

Box generated $18.4 million in cash from its operations during the three month period and $7.3 million in free cash flow in the same timeframe.

So Box managed to best expectations while generating quite a lot of cash. Not bad for a SaaS company comfortably over the $500 million ARR mark. And yet its shares fell. We’ll need to keep exploring.

Next Quarter’s Results

Often when a company reports earnings, it’s now-dated results will meet or best expectations, only to see that same firm’s stock dive after forward guidance comes up short. So let’s see if projections are at fault for Box.

According to its earnings report, Box expects second quarter (F2019) revenue between $146 million and $147 million and adjusted losses per share between $0.06 and $0.05.

Analyst estimates compiled by peg expectations for the firm’s next quarter revenue at $146 million. So Box is bang-on there. The same group of analysts expected a $0.07 per share adjusted loss. Once again, Box is fine.

The same set of analysts expect Box’s fiscal 2019 revenue to total $605.8 million. Box, in its most recent report, indicated that it will turn in top line between $603 million and $608 million. So, there Box is a bit light. What that implies is that analysts are expecting Box’s growth rate to decelerate slightly less than the company is projecting itself.

But that doesn’t really seem to be enough of a disconnect to cost Box a full five percent of its value.

Onwards we march.

SaaS And What Not

After Box’s earnings report, we updated our , which you can find here. There are a few things worth noting in it.

First, Box’s churn rate has reached another local maximum. There is a single quarter that we know of in which Box’s stated churn rate was higher. It was the fourth quarter of its fiscal 2015, back when Box was a fraction of its current size.

Since its calendar 2016 run of three percent churn rates, Box has seen that critical slippage metric slowly worsen. It is now up 50 percent to 4.5 percent in the most recent quarter. At the same time, Box’s net expansion rate tied its lowest-ever result at 14 percent. Subtract the two, and you get 109 percent, Box’s lowest-ever net retention rate.

That’s less than good. What we’re seeing, therefore, is Box continue to pour over half its revenue into sales and marketing to grind out slower and slower revenue growth, coupled with declining SaaS vitals. That’s not wildly enthralling.

Of course, Box, which generates lots of cash, can keep doing this forever. You can’t kill a company that generates cash—or, at least, it’s very hard to.

Box is still trading near historic highs. This is good for the SaaS company, and good for the private companies that use it as a public comp when they raise money at new valuations. But for Box, its run to new heights has been clipped by investors who are not impressed by a modest beat, mostly in-line guidance, and rising churn.

Okta its fourth-quarter earnings March 7th (FQ4’18). It pulled in revenue of $77.8 million, up 59 percent year-over-year, a GAAP loss of $24.7 million, a non-GAAP loss of $10.1 million, and positive net cash flow from operations of $0.2 million.

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As you might expect in a SaaS business, Okta’s revenue is largely recurring. $72.0 million of its $77.8 million in revenue during the quarter was subscription. That’s about 93 percent.

Shares of Okta are up today after its results beat both on profit metrics (lower-than-anticipatedÌýadjusted per-share loss) and revenue growth (exceeded by $3.9 million).

What the situation does is let us pick out a few metrics from the company’s performance and generate a new set of revenue multiples. We traditionally do this for Box. However, adding Okta into our regular mix of benchmarks seems like a good idea—especially as Box decelerates.

So here’s the rundown:

• Okta FQ4 revenue: $77.8 million.
• Okta approximate ARR: $311.2 million.
• Okta F2018 revenue: $260.0 million.
• Okta valuation: $4.26 billion (, as of the time of writing).
• ARR multiple: 13.7x.
• Trailing revenue multiple: 16.4.

Holy hell, you are probably thinking, those multiples are bonkers. To some extent, those multiples are bonkers. But Okta grew 62 percent last year, including 67 percent growth in its subscription revenue base. Those are good growth figures for a company that just posted positive operating cash flow (especially in SaaS).

But what’s odd about the Okta picture is that its guidance is only so aggressive. The company, according to its own notes, expects F2019 revenue of $343 to $348 million, up just 33 to 35 percent from its F2018 result. That’s a pretty dramatic growth deceleration on a percentage basis. What’s even odder is that the street expects the same, anticipating F2019 revenue of $343 million according to .

So Okta is richly valued today and very richly valued compared to Box’s post-earnings 4.8x ARR multiple and 5.2x trailing revenue multiple, obviously. But both the company and its observers expect dramatically slower growth.

And yet its stock is up today. If you can square that circle, call us, but today there’s a least one SaaS company out there in the public markets putting up 2014 multiples.

That’s notable.

From TheÌý:

• Uber founder and former CEO Travis Kalanick is launching a venture fund called 10100 that will focus on large-scale job creation. The fund will back for-profit and non-profit ventures in areas including real estate, ecommerce, and education.

Corporate bio VCs do more deals

• Large biotech and pharma companies are doing more venture deals, and bigger ones too, a Crunchbase News analysis finds. Since last year, the largest corporate investors in the space took part in rounds valued at more than $6.4 billion. Trendlines show investment is still on the rise.

• , a two-year-old startup that sells bone broth protein supplements, has raised $103 million in a financing led by VMG Partners and joined by Hillhouse Capital, ICONIQ, and others.

China-US joint venture could set blueprint

• U.S.-basedÌý, a maker of industrial wearable computers is forming a joint venture with China-basedÌý, a developer of augmented reality technology. Founders say the deal could set a blueprint for future cross-border collaborations.

Following the mixed-beat, shares in Box are sharply lower. At the time of writing, Box equity is off over 10 percent to under $22 per share. Before releasing earnings today, Box rose over 1.5 percent in regular trading, dancing around all-time highs before the closing bell.

Why the massive decline? Analysts the company to predict a $0.08, adjusted per-share loss in the next quarter, along with revenue of $144.27 million. Box, in its release, indicates that it expects revenue of $139 to $140 million, which is lower due to “the new revenue recognition standard (‘ASC 606’).” Box notes that it is “adopting […]Ìý beginning with its fiscal year 2019 using the modified retrospective transition method.”

However, the firm notes that without the change in accounting standards, it would have expected revenue of between $142 and $143 million, which would have also fallen short of expectations.

In short, Box’s decelerating revenue caught investors by surprise, and its recent flirtations with all-time highs have been set back. Certainly, the results set Box up for an easier beat in the current quarter, but it’s paying for future flexibility in lost value today.

What All That Means

Box’s missed top-line forecast matters to investors because it deprecates the implied value of future cash flows. That’s because if Box is seeing greater-than-expected slowdown in revenue growth now the firm’s revenues will grow more slowly than anticipated. And, frankly, the firm’s sequential-quarter revenue gain it has promised is lackluster.

So, down goes the value of its shares today as its future looks less promising. This is how a company can mostly beat expectations and still trip after reporting earnings.

For Dropbox, this is a material disappointment. Box is now worthÌýless than it was when Dropbox filed and has a higher revenue base. This deprecates its trailing revenue multiple, and its implied-ARR multiple, two numbers that Dropbox wants as high as they can be. Dropbox, a comparable company to Box, in many ways regardless of how much it wants to shout that it isn’t, will now have a harder time convincing Wall Street to pay the premium needed to get it to a $10 billion valuation, as Box has now effectively lowered the floor.

Mostly. At play here is that Dropbox hasn’t yet disappointed investors with slower-than-expected growth. So, if Dropbox can convince investors that the smaller multiples that they are willing to pay for Box’s future incomes don’t apply to it, given its higher base growth rate, perhaps this isn’t as bad as it looks.

At the same time, boats and tides tend to fluctuate together.

So, what is Box’s implied ARR? Given its fiscal fourth quarter top line, about $546.8 million. Every online financial data provider lists Box’s current market cap at about $3.3 billion. It isn’t instantly clear if that is inclusive of Box’s after-hours declines.

If it is, Box’s new ARR multiple is just a hair over 6x. If it isn’t, Box’s ARR multiple drops to 5.4x. That’s not good for Dropbox.

More clearly, when certain classes of tech stocks rise or fall, it’s possible to infer the impact of those movements on similar, smaller private companies. Examples of this arent hard to summon: Blue Apron likely weighed on HelloFresh’s debut, Box’s likely impacted Dropbox’s own journey, and so on.

And that’s why we keep an eye on , a -run cohort of public cloud companies that it tracks over time compared to major public indices. The Index also details a wealth of metrics including certain revenue multiples, but we can leave that aside for now.

What we will observe today is how the recent market chop impacted cloud stocks.

Thinking short term, if cloud stocks are taking punches, enterprise and enterprise-ish IPOs could suffer. Simply put, as 2018 is tipped to be the year that tech IPOs finally get their shit together if cloud stocks falter it could negatively impact the flotation timeline.

So, what is actually happening to cloud stocks? More of the what came before as it turns out, as the following chart notes.

What to see here? First that the recent pseudo-correction¹ failed to make a material dent in cloud stocks. You can quickly see that in the return to form that the index quickly executed.

Secondly, that cloud stocks are rebounding faster than the major indices. While the Nasdaq is merely trying to regain lost ground, the BVP-selected crew has raced ahead to new heights.

A caveat, however. The above chart is only updated bi-monthly. And, per Bessemer, its last update was on the 15th. So, there is some market data not included in the chart. That isn’t overly important given that we are coming off an extended weekend, but it’s worth bearing in mind all the same.

Why Do We Care?

We’ve covered the BVP Cloud Index a few times at Crunchbase News. Why care about it in this moment? Because, in my view, its recent performance indicates that the public markets are still bullish on growth. That’s quite important for unicorns, firms that are betting that profits can come second to topline expansion in IPO roadshows.

(You can quickly vet the preceding comment by asking yourself what percent of unicorns that go public in the next 18 months will have positive GAAP net income on display. Then, contemplate the story that the other 97 percent of the group that do not have positive GAAP net income will tell. It’s growth. 100 percent of the time.)

And thus, the IPO window may be a bit more open than slowpoke unicorns might have us believe. If investors are still paying for growth at historically stretched multiples, shut up and go public.

1. If at firstÌýyou don’t correct, try, try again.

Yesterday Crunchbase News explored the recent share price movements of Box and Workday, leading SaaS companies that reported earnings this week. Despite largely beating expectations, the firms saw muted responses to their recent financial performance.

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It wasn’t hard to come up with a reason or two as to why, including the fact that the firms had already staged dramatic price recoveries from 2016 lows. SaaS had an up-and-down last year, and Box, for example, has the scars to prove it.

Something that we noted in that short discussion was growth. I’ve long harbored a small mote of curiosity about SaaS companies and their growth rates, especially compared to their costs.

Let me explain.

SaaS companies sell recurring revenue, top line that should compound over time. To understand that, think about the compound rate as the result of each revenue cohort’s upsell per year, minus its churn. (We could make that explanation more technical and accurate, but it’s enough to get the picture.) So as strong SaaS companies grow their revenue base, that base should create goodly sums of revenue growth by itself—presuming competent customer success teams.

In light of that, why does Box still spend so much money on sales and marketing to grow just 28 percent in the last quarter, the bulk of which comes from its compounding and previously-acquired SaaS revenue?¹

Perhaps because the pie is smaller than I previously thought. That implies that to pick upÌýnew revenue, Box and its peers have to compete incredibly hard for eachÌýnew dollar of SaaS top line they snag.

How small is the pie? Recall the headline of this short note and answer the following question with your best guess: how big was the SaaS market in the second quarter as measured in dollars?

How Big Is SaaS?

The correct answer is $15 billion according to a recent r. Here’s how it summarizes the current SaaS market:

New Q2 data from Synergy Research Group shows that the enterprise SaaS market grew 31% year on year to reach almost $15 billion in quarterly revenues, with collaboration being the highest growth segment. Microsoft remains the clear leader in overall enterprise SaaS revenues, having overtaken long-time market leader Salesforce a year ago.

I think that this explains our conundrum. Why do SaaS companies have to work so hard and spend so much money to buy new revenue? Because the total bucket of dollars is shallow and competition is fierce.

SaaS firms still have strong margins, proven paths to cash flow positivity, and the like. But their high customer acquisition cost makes their low COGS a bit less attractive.

That’s enough work. Go enjoy your weekend!

1. Box spent $73.3 million in its second fiscal quarter on “Sales and marketing” expenses. It grew 28 percent, year-over-year, to revenue of $122.94 million in the quarter. The firm claims in its that it has retention of 113 percent. How did it cost Box so damn much money to grow the other 15 percent?

FromÌý:

Tech giants push to keep immigration program

• U.S. tech and business leaders are urging President Trump and other politicians to continue a program that allows undocumented young immigrants to remain in the country. Executives of Google, Amazon, Facebook and others signed anÌýÌýin support of the program, which covers about 800,000 people.

ICO unicorns have arrived

• OmiseGO and Qtum, two cryptocurrency tokens based on the Ethereum network, have surpassed the $1 billion market cap mark,Ìý. Their rise comes amid someÌýsigns of slowingÌýfor initial coin offerings (ICOs) after a supercharged summer.

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• Stop scrolling and take a deep breath. Or download an app to help. There are plenty. In the past year or so, investors have backed more than 20 startups developing tools aimed atÌýpromoting mindfulness, happiness, and other desirable mental states. To date, these companies have raised more than $150 million, according to a Crunchbase News analysis.
• For more stories, followÌýÌýon Twitter and check us out onÌý.

Indeed, the market response to Box and Workday earnings may indicate that the recent run in SaaS stocks is losing steam. For private SaaS companies, public investors could be signaling a soft ceiling for revenue multiples.

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And that matters. As a number of SaaS and cloud-centric stocks have seen their fortunes dramatically recover over the last year, it has painted an increasingly rosy picture for startups working in the same space. Crunchbase News has covered the trend, specifically highlighting Box results to draw a new picture of current SaaS revenue multiples and public cloud company returns.

But the SaaS market looks a little less rosy today. Let’s quickly examine the respective results of Workday and Box to gain our footing on what’s happening.

BoxÌý

Shares of Box are off around 1.7 percent today after the company beat revenue expectations by reporting $122.9 million in top line, ahead of estimates of $121.7 million. The firm’s adjusted earnings per share were $0.11, better than expectations of an adjusted $0.13.

Box suffered, at least some, from a mixup in its analyst expectations that led many — — to report that Box missed on revenue. It didn’t.

The firm’s shares recovered from after-hours lows, but remain down slightly. Why? It wasn’t billings, which came in ahead of expectations, or full-year revenue guidance, which the company “narrowed”

Instead, it seems that the firm’s swing back to negative free cash flow, coupled with a slowing revenue growth (as a percent), was enough to drive investor pessimism. But Box shares this morning are off just 7.6 percent or so off of 52-week highs. So Box is down a smidge from recent records. Still, the firm is up nearly 50 percent from its 52-week lows.

Finally, Box’s CEO Aaron Levie stated both in the firm’s earnings call that his company will return to free cash flow positivity in the current and fourth quarter of its fiscal years. It seems that Box took quite a number of charges relating to its conference and international real estate in a single quarter. If Box was gently packing those expenses into a single period so as to eat all its lumps at once, the strategy appears to have worked.

That leaves us here: Box beat expectations and the cashflowÌýresult appears more blip than chronic illness. Regardless, Box shares are down. Perhaps investors are saying that, for a SaaS company with $452.8 in trailing revenue, and a most-recent YoY quarterly growth rate of 28 percent, a market cap of around $2.6 billion and a revenue multiple of 5.7 are just about correct.

That’s a good baseline for any SaaS startup.

Workday

Workday, a far larger company than Box, also beat expectations in the quarter. Here’s :

Non-GAAP earnings were 24 cents per share on revenue of $525.3 million, up 40.6 percent annually. Subscription revenue was $434.5 million, an increase of 42 percent from the same period last year.

Wall Street was expecting Q2 earnings of 15 cents per share on revenue of $507.4 million. Despite the earnings beat, Workday’s share slipped slightly after hours.

ZDNet also notes that Workday’s quarter was its “fourth consecutive quarter of more than 40 percent growth in subscription revenue.” The firm is deeply unprofitable on a GAAP basis.

Still, the firm managed a steep beat in revenue, subscription revenue, and non-GAAP profit. Its shares after hours are up around two percent, after dipping below flat earlier in the day. It’s a muted reaction; however, it’s a reaction that is perhaps less surprising in context.

Shares of Workday are only a few points off 52-week highs and are up more than 65 percent from 52-week lows. So the company has already enjoyed its run, and a lot of its beat was likely already priced into its value.

That fact, coupled with Box’s small fall after its own earnings beat, helps make our case that the SaaS run could be nearing a local maximum. SaaS stocks were punching bags in the early quarters of 2016. Now into the third quarter of 2017, they could be slightly overbid.

Implications

As always, public SaaS companies help set valuations down the maturity chain. (Said another way: less-mature, private SaaS companies are impacted by their post-IPO brethren.) If public SaaS companies are on a tear, it helps private SaaS companies secure prior valuations or set new ones. If public SaaS companies tank, the opposite happens.

So to see Box and Workday beat, and then largely go unch, may imply that private SaaS companies are seeing public SaaS multiples crest-out.

It might even be a good time to go public—who knows.

Top Image Credit: Image has been cropped.