L/S SaaS Modeling
Learning how to do SaaS modeling but real confused over here with the RPO, cRPO, billings nonsense.
Can anyone in a SM talk about how you model SaaS names? Do you waterfall stuff? How do you incorporate RPO information into it?
Any good resource, free / paid, I can read to understand wth is going on when revenue is the least important metric apparently?
bump
Generally just model revenue. Billings, backlog, RPO are not that useful for projections.Ideally you'd build an ARR bridge (new logo, upsell, downsell, churn) but it's rare that disclosures allow for this
Thx. But stocks trade on billings and I asssume RPO too because they are forward looking?
Do you just pay attention to how billings / RPO are growing, but you don't do the waterfalling and don't use them to drive the revenue. Instead you just grow the revenue based on historical or something?
Maybe my perspective is not that helpful because I don't build detailed projection models. But yes billings is a useful "blunt instrument" in the sense that if billings fall off a cliff next quarter, that is almost certainly a bad sign. But q/q variations are often just noise
For a SaaS company the billings, RPO etc etc are THE most important thing. Revenue is practically a backwards looking metric.
On modelling, assumptions can be made over churn and how long it takes revenue to be drawn from the backlog but best to focus on the 'forward looking' metrics.
Following
take a look at TheSaasCFO. seems like a solid place to learn and understand everything about saas business models. hope it can help you
www. thesaascfo .com/
Thx.
I more particularly want understand how public SaaS investors pay attention to. This CFO person has insider view, but I am hoping to shadow someone who has same level of access to data like I do as public person.
following
Bump
I’ve covered the sector for 10 yrs on SS. poster above saying revenue is best metric doesn’t know what they are talking about. The holy grail metric is net new ACV and net new ACV essentially is net new ARR. sub revs x 4 doesn’t equal ARR either so don’t do that.
billings, cRPO and RPO are all key metrics but it differs from company to company. 12 month crpo disclosures you should look at Crpo bookings and billings. If company does 3-5 year deals total RPO bookings might be best metric. For companies where timing of invoice jumps around RPO is better vs billings. Every metric has its flaw and it ultimately depends on company. Happy to help more .
Nice. Thx.
I am reading this Salesforce and Splunk investor day that they talk about all this 101 stuff, it has all the terms you talked about but I'm still confused. WTH is RPO bookings? That's different from RPO?
Any resource online you could pt me to that can tie all these things together? Like, how billings, RPO, cRPO, RPO bookings, CRPO bookings, ARR, ACV, bookings link together?
Bookings = this quarter’s revenue + QoQ change in RPOs
Billings = this quarter’s revenue + QoQ change in deferred revenue
Think of it:
Rep makes a sale: 5yr deal for a saas (not on prem) product
1 quarter is booked for revenue
4 quarters are billed for (assuming annual billings)
16 quarters go into RPO
So as you progress to year 2, four quarters are pulled out of the 16 quarter jar and you bill for them then recognize as each quarter passes.
So the RPO jar fills up based on your reps driving bookings. But those bookings don’t necessarily mean cash is collected (billings) or revenue is recognized until the service is delivered.
Could you share how do you calculate an ACV from the RPO / booking ./ billing stuff?
What's the reason why SS models "waterfall" billiings into revenue?
There isn’t any tried and true way to calculate ACV perfectly across each company unfortunately. But if a company disclosed ARR, net new ARR is the same as net new ACV.
Look through Q&A portion from sell-side in earnings transcripts of public SaaS companies and then look in investor presentations / 10Qs / 10Ks for the meaning of any metrics mentioned
Example with Datadog (DDOG):
"OK. Perfect. And then David, in these kind of uncertain times, a lot of the time you have negotiations or a vendor has negotiated with customers around billing, billings terms, etc. Have you seen anything that is impacting you or that you can note? Thank you."
https://www.fool.com/earnings/call-transcripts/2022/11/03/datadog-ddog-q3-2022-earnings-call-transcript/
Investor pres slides starting at slide 14 for specific metrics
https://investors.datadoghq.com/static-files/986ca4cd-9507-4c9d-b56f-4bae59d3dd47
Really useful thanks!
Does anyone still need help on this? Have been doing L/S software for a few years at both a SM and MM.
Would appreciate any more info
Same. Any thoughts on how to model it as a real investor is appreciated.
Do you use LTV / CAC as a driver?
I'll ask a specific example if i may - how do you calculate net new ACV for ServiceNow?
Bumping this thread, I’m resorting to this because I am so out of my depth in terms of modeling out a public software co that we are initiating coverage on (my team is not a software team). I’m looking at an old model and have no idea wtf is going on (3000 row bookings waterfall with fairly arbitrary split between booking types), would appreciate absolutely any help with resources other than SaaS CFO since that is more banker oriented rather than public Co’s.
there's an old RingCentral investor day which is a really good resource, CFO talks about big metrics, channel sales, etc
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