Subscription-Based Companies Defy Economic Headwinds

On March 17 of 2020, Analysis Mason published a report on the Software as a Service market, or SaaS. At the time, the industry was just beginning to grab mainstream attention, and publicly traded SaaS companies like Salesforce (CRM) and Adobe (ADBE) had tremendous years, returning 36.8% and 51.64% respectively; both far exceeding the 18.4% returns of the S&P 500.

In its 2020 report, Analysis Mason said the expected SaaS-related revenue would grow at a 29.5% compound annual growth rate (CAGR) through its 5-year forecast period, which coincidentally ended in 2023.

However, it’s now 2024.

A new report from SkyQuest Technology Group shows growth in the SaaS market, moving forward (from 2024 to 2031), is now expected at half the previous estimated rate… or a CAGR of just 13.7%.

Clearly, while still robust, this would represent a precipitous drop in growth forecasts, which can now be evidenced in some SaaS stocks.

Take for example those darlings of 2020, Salesforce and Adobe. As of this writing, CRM is down nearly 3% YTD, with ADBE down over 5% YTD. This, while the major indexes have reached new all-time highs.

But it’s not all bad news for subscription-based companies.

In fact, for some companies, their growth is outpacing the latest SkyQuest estimates.

Defying Headwinds, Fueling Recurring Growth

CIO.com says, “Organizations with subscription-based business models have not only survived the recent global economic challenges but have also outperformed their traditional, product-based counterparts…

“…burgeoned 3.4 times faster than their counterparts in the S&P 500, underscoring a compound annual growth rate of 16.5% against the latter’s 4.8%.”

So, why are some companies succeeding in the subscription-based business now, even as the fanfare of 2020 has long passed?

Well, as CIO continues, there’s a “transformative shift towards “total monetization” strategies, where businesses increasing adopt innovative, customer-centric models to ensure sustainable growth.”

So, outpacing growth in the SaaS market is there… you just have to find it.

Nicolas Lin, CEO of Aether Holdings said of the subscription-based business model, “The flexibility of the model allows businesses like Aether to quickly pinpoint opportunities and pivot away from potential revenue holes.

“We’ve already acquired one subscription-based company in the financial research space, Sundial Capital, the operator of SentimenTrader, and we’re actively looking to acquire additional assets in this exciting space.

“Clearly, the subscription model not only gives the consumer more control over choice but gives businesses the opportunity to quickly creating more customized products for more efficient revenue growth.”