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That workflow is a business opportunity that saw in the market. Started by the ex-founders of an online ordering system for restaurant chains, Scout RFP helps buyers manage purchases (and the workflow around them). This week was bought by Workday, a public Pleasanton, Calif.-based company that offers enterprise software for human resources and financial services.

Scout RFP, which raised $60.3 million in known venture capital funding, was scooped up by for about $540 million, plus cash, according . It’s also worth noting that was already a strategic investor in Scout RFP.

So What?

Here’s why we care: A public SaaS company just bought a private SaaS company to make sure logistical errors don’t deprive their customers of goods – er, mac and cheese. Jokes aside, was created to help all industries, not just restaurants, with goods management. (In fact, in August 2019, saying that Scout was working toward being a public company one day).

Through the acquisition, Scout RFP now has access to Workday customers like Amazon, Bank of America, Netflix, and Chiquita (yes, the banana brand). In return, Workday’s services expand into “sourcing and supplier engagement,” per , a previous investor in Scout RFP. Beyond just that, Scout RFP claims to help with “reduction in spend” and “greater policy compliance” .

, it made a healthy $2.3 billion in subscription revenue in fiscal 2019., it said it is eyeing around $3.6 to $3.7 billion in fiscal 2020, almost a $1 billion bump.

Therefore the company buying Scout RFP, a startup that has the potential to add to that number and overall revenue growth, is not surprising; it has a big goal to meet.

So my call? Combining forces seemed within arms reach, good for the pocket, and ideal for the customers. The deal is expected to close before January 31, 2020.

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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 up��new revenue, Box and its peers have to compete incredibly hard for each��new 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?

From��:

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• 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 an����in support of the program, which covers about 800,000 people.

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• OmiseGO and Qtum, two cryptocurrency tokens based on the Ethereum network, have surpassed the $1 billion market cap mark,��. Their rise comes amid some��signs of slowing��for 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 at��promoting mindfulness, happiness, and other desirable mental states. To date, these companies have raised more than $150 million, according to a Crunchbase News analysis.
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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.

Box��

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 cashflow��result 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.