Cloud earnings and valuations are heating up in private and non-private markets


Good news for software startups on the rise

Strong this quarter Public cloud firm results have been overshadowed by a seemingly endless IPO cycle. Another moment we missed a little over the past few weeks was the stock market, which has pushed the value of public cloud companies to all-time highs.

These events are interrelated. And they bode well for startups working on SaaS and API software that keep the climate warm for cloud venture investments and that have ratings stretched by historical norms.

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The earnings outcomes that have spawned Wall Street content include a growing number of cloud companies whose revenue growth is accelerating from Q2 2020 to Q3 2020, according to a recent analysis by Redpoints Jamin Ball.

Savvy readers will recall that The Exchange chatted with Ball after the second quarter earnings cycle. During this conversation, it was thought about how to achieve a nearly steady slowdown in sales growth from Q1 to Q2 in the software sector, which at the same time reportedly saw demand boom thanks to the pandemic and a suddenly removed workforce.

One hypothesis that Ball proposed was that contracts signed by SaaS companies in the second quarter would not show up until the third quarter if they were signed in the second half of the quarter. Regardless of the reason, the third quarter showed a far higher number of cloud results that imply a stronger sector.

For us startup watchers looking for an indication of what's going on in opaque private markets, this is a useful data point. If you're a little confused about why venture capital businesses have accelerated, and the time to judgment has dropped from weeks to minutes – anticipating the new normal – this is part of the why.

With the future moving forward in digitizing the American and global economies, it's a good time to be a software company. This was visible in the SaaS company's smartsheets Results this quarter. The stock exchange chatted with CEO Mark Mader about his company's recent results, which exceeded expectations and resulted in the company's shares rising. Analyst upgrades followed.

This morning let's examine the data on how many cloud companies are seeing accelerated revenue growth, examine the results from Smartsheet to see what we can learn (note: SMBs matter), and then all of our insights on the startup -Market apply ourselves so that we can. Go into the weekend as informed as possible.

Public acceleration

At the risk of being cheeky, I've embedded Ball's third-quarter revenue acceleration from cloud companies chart below. (If you like similar data sets, it's worth following on Twitter.) Here's the data:

This graph shows the cloud's year-over-year growth rates in the second quarter, subtracted from its own in the third quarter. A result greater than one shows that a company's year-over-year growth accelerated from the second to the third quarter. The higher the number of cloud companies that land with a score of 1% or more in the graph above, the faster the cloud market as a whole accelerates.