The Mistake Wall Street Made with Valuing Software Stocks

Name: The Mistake Wall Street Made with Valuing Software Stocks
Uploaded: 2023-12-22T19:13:11+00:00
Duration: 31 s
Channel: Jason M. Lemkin
Description: Jason M. Lemkin argues Wall Street undervalues software companies by ignoring what actually matters: gross margin, contract length, deal size, and…

22 Dec 2023 · 1 min

Watch on YouTube

0:31

Jason M. Lemkin argues Wall Street undervalues software companies by ignoring what actually matters: gross margin, contract length, deal size, and billing frequency. ServiceNow's high-margin, long-term contracts should command a higher multiple than lower-margin competitors with monthly billing, but the market treats them the same.

Chapters

And I think where Wall Street kind of got it wrong is they were treating literally all software the same. Again, indiscriminate of what's the gross margin, what is the contract value size, what is the renewal rate of that company, are they doing 5 or 10-year deals, or are they on monthly billing? And like all these things end up sort of compounding over time one way or another, where ServiceNow should not be valued at the same multiple of a company that is much less gross margin, much, much smaller deal size, but that's what the market was doing.