Despite a brief uptick in 2021, revenue growth rates for public B2B SaaS companies have been declining for the last decade. While surprising at first, deceleration in revenue growth can be attributed to a variety of factors.
On one hand, decreased revenue growth is a function of the market’s maturity and a sign that some large, public SaaS companies are in the process of transitioning to that phase of operations. However, according to recent research, current revenue growth deceleration may not purely be a function of size. When segregated into different groups based on monthly recurring revenue (MRR), it becomes evident that revenue growth rates have dropped across all groups, regardless of MRR. How can this be the case given the acceleration of digital transformation and associated increased demand for SaaS?
There are several market forces that may be driving decreased revenue growth rates, among them, the flight to quality that we have witnessed in both public and private markets in the last 18-24 months due to a complex macroeconomic landscape. When segmented by MRR, companies of all sizes have shifted their focus from growth at all costs to improved profitability, with a strong positive correlation between increased profit margins and valuation multiples. However, a push towards greater capital efficiency often comes at the expense of revenue growth.
Understanding these trends is crucial for both industry operators and investors. In the near-term, corporate strategies need to be altered to keep up with current market conditions. In a market where growth capital has become scarcer, achieving profitability and sustainable growth is of crucial importance when seeking to attract financing. As a result, successful companies must be able to navigate the rapidly changing market landscape and recalibrate their approaches.
