The SaaS industry might be on its way to recovery
macroeconomic uncertainties and greater deal scrutiny by clients. A recent ICICI Securities report pointed out that revenues of most SaaS companies topped guidance in the June quarter. Combined revenues of the top five global SaaS companies by revenues—Salesforce, Intuit, ServiceNow, Workday and Atlassian—grew 14% on a year-on-year basis.
Margins also improved. It’s an indication that there is an overall improvement in the demand for SaaS, even if it's tempered by client concerns about macroeconomic factors. Salesforce, for example, said the industry continues to face “elongated sales cycles and additional deal approval layers", even as it raised its revenue guidance by 1 percentage point to 11% for financial year 2024.
In calendar 2023, the share prices of all top five global SaaS companies have outperformed the Nasdaq Composite index. While their valuations are still lower than their peaks in October 2021, the appreciation in the past year reflects the long-term demand for SaaS. According to a forecast by market intelligence firm Gartner this April, end users are expected to spend $233 billion on SaaS by 2024—an increase of about 40% from the $167 billion in 2022.
IDC, another data provider, pointed out in July that it would be wrong to conclude that CIOs (chief information officers) would stop spending on the cloud because of economic challenges. In fact, the long-term investment agenda is starting to be dominated by “the assessment and use of AI, triggered by generative AI", said IDC. SaaS companies have been responding to that either through acquisitions or by strengthening their AI talent.
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