Why Tech Investors Love the SaaS Business Model
Investors love businesses that have a reputation for minting cash.
And as far as tech companies go, the Software as a Service (SaaS) model is as good as it gets. It provides predictable, quantifiable, and fast-growing revenue for any company that can execute correctly – and everyone from venture capitalists (like Marc Andreessen) to asset managers (like Blackrock) love investing in companies with these traits.
Today’s infographic from TIMIA Capital explains why this is the case.
What is SaaS?
Unlike in years past when software was bought in a physical form at a store, much of today’s software runs right off the cloud.
This is made possible by ubiquitous broadband access and powerful computers – and SaaS allows users to consume software in a different way:
- Customers connect to the software online
- Customers are charged on an ongoing subscription basis for access
- The latest version of the software is automatically provided to the user
SaaS has immeasurable benefits over traditional software distribution models.
- It can be used everywhere, including on mobile
- It has easy integration with plug-ins or add-ons
- There is no overhead, packaging, or distribution costs
- It limits piracy
- It has a flexible and clear licensing model
- Software is always up-to-date
- User data can be collected and new features can be tested easily
While the benefits of SaaS to the end user are plenty, it has even more interesting properties as an investment.
Instead of relying on one-time transactions or upfront fees, SaaS is built around smaller, subscription-based transactions that recur each month or year.
Recurring revenue makes SaaS extremely predictable, measurable, and built to scale.
Unlike some other types of startups, measuring performance in SaaS is heavily focused on growing important metrics like LTV (lifetime value) or MRR (monthly recurring revenue), while minimizing CAC (customer acquisition costs) and churn (the rate at which customers stop buying the product).
As a result of the inherent attributes of the SaaS model, the industry has been exploding with growth. The BVP Cloud Index, which tracks 56 publicly traded cloud companies, is up 396% since 2011. That easily beats out benchmarks like the Nasdaq, S&P 500, and DJIA by triple digits.
Other Reasons to Love SaaS
Aside from performance, here are a few last reasons that elite investors love SaaS:
Costs go down: As SaaS businesses scale, the cost of servicing each customer goes down. In the long run, this helps lead to a growing, predictable cash flow.
Buyouts: It’s common for SaaS businesses to get gobbled up by the bigger fish in the pond, which often offers investors a premium on the current stock price.
Low Barriers: The SaaS model has erased barriers to entry for software, allowing new entrepreneurs to enter the fold in almost every niche possible. This creates a wide array of new opportunities for investors, as well.
The 50 Most Valuable Companies in the World in 2023
The world’s 50 most valuable companies represent over $25 trillion in market cap. We break this massive figure down by company and sector.
The 50 Most Valuable Companies in the World
Market capitalization, or market cap, is one measure of a company’s value as determined by the stock market. It is easily calculated by multiplying the company’s outstanding shares by its current share price.
In this graphic, we present a treemap chart that visualizes the world’s top 50 publicly-traded companies by market cap, using data as of Aug. 16, 2023.
Editor’s note: While market capitalization is a simple way to compare publicly-traded companies, it does have some limitations. Most importantly, it does not include debt or cash in the calculation.
Data and Highlights
All of the data we used to create this graphic is included in the table below.
|Apple||Information Technology||🇺🇸 US||$2,777|
|Microsoft||Information Technology||🇺🇸 US||$2,382|
|Saudi Aramco||Energy||🇸🇦 Saudi Arabia||$2,222|
|Alphabet||Communication Services||🇺🇸 US||$1,636|
|Amazon||Consumer Discretionary||🇺🇸 US||$1,385|
|NVIDIA||Information Technology||🇺🇸 US||$1,074|
|Berkshire Hathaway||Financials||🇺🇸 US||$774|
|Meta Platforms||Communication Services||🇺🇸 US||$754|
|Tesla||Consumer Discretionary||🇺🇸 US||$715|
|Eli Lilly||Health Care||🇺🇸 US||$519|
|Visa||Information Technology||🇺🇸 US||$501|
|TSMC||Information Technology||🇹🇼 Taiwan||$476|
|UnitedHealth||Health Care||🇺🇸 US||$469|
|Johnson & Johnson||Health Care||🇺🇸 US||$448|
|LVMH||Consumer Discretionary||🇫🇷 France||$442|
|JPMorgan Chase||Financials||🇺🇸 US||$436|
|Exxon Mobil||Energy||🇺🇸 US||$430|
|Walmart||Consumer Staples||🇺🇸 US||$429|
|Novo Nordisk||Health Care||🇩🇰 Denmark||$418|
|Tencent||Communication Services||🇨🇳 China||$389|
|Mastercard||Information Technology||🇺🇸 US||$374|
|Procter & Gamble||Consumer Staples||🇺🇸 US||$361|
|Broadcom||Information Technology||🇺🇸 US||$344|
|Samsung||Information Technology||🇰🇷 South Korea||$341|
|Home Depot||Consumer Discretionary||🇺🇸 US||$335|
|Kweichow Moutai||Consumer Staples||🇨🇳 China||$319|
|Nestlé||Consumer Staples||🇨🇭 Switzerland||$319|
|Oracle||Information Technology||🇺🇸 US||$313|
|Merck||Health Care||🇺🇸 US||$276|
|AbbVie||Health Care||🇺🇸 US||$267|
|Coca-Cola||Consumer Staples||🇺🇸 US||$262|
|ASML||Information Technology||🇳🇱 Netherlands||$258|
|Pepsico||Consumer Staples||🇺🇸 US||$249|
|Costco||Consumer Staples||🇺🇸 US||$248|
|L'Oréal||Consumer Discretionary||🇫🇷 France||$244|
|Roche||Health Care||🇨🇭 Switzerland||$241|
|International Holding Company||Financials||🇦🇪 UAE||$240|
|Adobe||Information Technology||🇺🇸 US||$235|
|Bank of America||Financials||🇺🇸 US||$233|
|Alibaba||Consumer Discretionary||🇨🇳 China||$228|
|Hermès||Consumer Discretionary||🇫🇷 France||$227|
|Toyota||Consumer Discretionary||🇯🇵 Japan||$220|
|Novartis||Health Care||🇨🇭 Switzerland||$216|
|AstraZeneca||Health Care||🇬🇧 UK||$216|
|Cisco||Information Technology||🇺🇸 US||$216|
|Reliance Industries||Energy||🇮🇳 India||$213|
|McDonald||Consumer Discretionary||🇺🇸 US||$208|
|Thermo Fisher Scientific||Health Care||🇺🇸 US||$204|
From this data, we can see that there are only a handful of trillion dollar companies in the world, including Apple, Microsoft, Saudi Aramco, Amazon, Alphabet, and Nvidia.
Two former members of the trillion dollar club are Meta and Tesla, but both companies currently hover around the $700 billion range in terms of market capitalization. In 2022, Meta lost significant value as its earnings fell, while Tesla suffered from demand concerns.
Altogether, the 50 most valuable companies represent over $26.5 trillion in shareholder value. At a sector level, Information Technology is the most represented in the top 50, with $9.3 trillion in combined market cap. The next biggest sectors are Consumer Discretionary ($4.0 trillion) and Health Care ($3.3 trillion).
At a geographical level, the majority of the 50 most valuable companies are American. The following chart shows each country’s tally.
After the U.S., the three most represented countries are Switzerland, France, and China, with three companies apiece.
From Switzerland are companies such as Nestlé, Roche, and Novartis. The latter two are major players in the healthcare industry.
France’s companies in the top 50 list all belong to the Consumer Discretionary sector, and include fashion giants LVMH and Hermès, as well as L’Oréal, a global leader in cosmetics. Earlier this year, LVMH CEO Bernard Arnault was officially the richest person in the world with a fortune of $215 billion.
Finally, from the Chinese side are two globally-recognized names in Tencent and Alibaba. China’s third company on this list is Kweichow Moutai, a partially state-owned producer of alcoholic beverages.
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