Thread by @RamBhupatiraju

1/ Long thread on #SaaS.

I used to find it easier in 2016-17 with fewer SaaS companies to choose from and the valuations being more reasonable.

With so many public Co's now and P/S over 20 for most, it's important to be really right about the quality/durability of the Company

2/ and being conservative in growth expectations & valuations.

Yes, the really big winners could wipe out the losers, but I believe that every investment should be made on its own merit/potential & not with a "Spray and Pray" approach that they'll be bailed out by the winners.

3/ If we look at each SaaS co docs/ppts in isolation, it would look like they have the best-in-class product, would capture most of their TAM, and once at scale their S&M/ R&D/G&A costs will all come down generating lot of earnings and FCF...

4/ Where it gets complicated is when we don't understand
-the exact utility/quality of the Product/Service.
-the competitive/replacement threats to that Product from incumbents, future Co's that IPO, and from giants who have adjacent products and strong customer relationships.

5/ I'm not a SaaS expert (as a Developer, User or Investor), but based on my readings and observing the space in the last few years, trying to develop some kind of rough framework around the SaaS universe w.r.t competitive strength, stickiness, presence of moat etc.

6/ So here's how I visualize the #SaaS space for now (more to learn, could be very wrong with where I placed some of them,also can't list em all).

Comments welcome.
@TMFJMo @TMFInnovator @TMFStoffel @BrianFeroldi @FoolMCochrane @saxena_puru @FromValue @AustinLieb @investing_city

7/ Personally, I feel much more confident about the Quality and (slight over)valuations when the Co's have multiple growing products, some of them being mission critical or very sticky for their customers, raising the switching costs etc.

8/ Yes, buying the single product/niche companies (even at high valuations) could turn out OK, if they maintain their laser focus, beat current/future competition, become the standard offering for the use case, while improving their Financials and growing into their valuations.

9/ Every one (should) have their own understanding and opinions on qualitative/quantitative factors and base their actions on their investing objectives. So the above were mine. Thank you for reading.🙏

10/ Saas Disc:

Own : $AMZN $GOOGL $CRM $TWLO $SHOP $SQ $VEEV $PAYC $TTD $AYX $OKTA $ZS

Holiday wishlist : $NOW $ADBE $WDAY $DOCU $SPLK (if they come down a little, like last Nov/Dec🙂) and $TEAM $MDB $ESTC $ZM (once I understand them better and/or feel more confident).

END.

Thank you all for the amazing feedback. This was just a personal attempt to get from an increasingly confusing space of dozens of Co's to some kinda actionable framework to separate stronger from the rest.

YMMV depending on your level of research & understanding of the space.👍