On April 9th, I moderated “Buy, Sell, Hold: What Survives the AI Era?” at the Abacum Summit.
We tackled a simple question: What parts of finance are actually worth keeping — and what needs to go?
Alongside Chris Brubaker (Postscript), Fraser Hopper (PostHog) and Tania Secor (Stamford Health), we turned it into a live, audience-voted debate on what modern finance teams should buy into, sell off or hold on to as AI reshapes the function.
If you couldn’t make it to Gotham Hall, the full session is now available on demand.
Sector Refresh
Drake dropped 3 new albums this week, which motivated me to drop 9 new sectors.
Well, not totally “new” (you could say the same about his music). But reconstituted for the new world we live in.
BC tech has done a lot of reshuffling over the last year. Look no further than the Cerebras IPO on Thursday, which bent a lot of people’s noggins.
In recent months we’ve seen:
A wave of capital intensive IPOs, including AI infra companies that structurally didn’t exist as public comps two years ago (Coreweave, Cerebras)
A divergence in fintech multiples between B2B payments vs B2C payments vs exchanges and crypto
A more nuanced view of vertical SaaS
Back office and MarTech SaaS getting carpet bombed into oblivion
So eight indexes became nine. I moved a handful of companies to where they belong based on what, how, and to whom they sell. And a few legacy names got cut (RIP NetApp). The full refresh is below and will get updated on a weekly basis.
None of the calculation methodologies or formulas have changed.
If a sector assignment looks wrong to you, hit reply and tell me. I moved a lot of companies around and I could have made a mistake. I’m also doing this on a United Flight yanking down 7 mbps of wifi (which they still have the nerve to charge me for… write off!).
When you take a look, keep in mind: the goal is to create a useful set of sector indexes for operator’s running companies so they can see themselves in relevant growth and efficiency metrics, and tie it to valuation.
The new nine
Fun fact - Slip Knot had nine members. They each went by a number. But the clown went by 0 (he must have been a developer?). So they technically only counted to 8.
1. Security & Identity (17 companies)
Endpoint, network, IAM, security operations. The CISO budget.
CrowdStrike, Palo Alto Networks, Fortinet, Cloudflare, Zscaler, Okta, SentinelOne, SailPoint, CyberArk, Check Point, Qualys, Tenable, Rapid7, Varonis, Rubrik, Mitek, OneSpan
2. Data & AI Infrastructure (13 companies)
Modern data stack, AI/ML platforms, vector and analytics infra, GPU compute. Software-native by design. The legacy hardware names (HPE, NetApp, Lumen, Rackspace, Cisco) that used to live in the old “Cloud Platforms” bucket are gone.
Snowflake, Arista Networks, Equinix, CoreWeave, MongoDB, Confluent, DigitalOcean, Elastic, Akamai, Fastly, Teradata, C3.ai, Cerebras
3. Dev Tools & Observability (10 companies)
Anything bought out of the engineering budget. The observability names used to live separately. Combined them with dev tools because they’re sold to the same buyer through the same procurement motion.
Datadog, Atlassian, Figma, Dynatrace, Nutanix, GitLab, UiPath, JFrog, AvePoint, PagerDuty
4. Horizontal SaaS & Back Office (18 companies)
Software sold across industries to ops, HR, finance, and collaboration teams. Not vertical-specific.
Oracle, ServiceNow, Workday, ADP, Paychex, Paycom, Paylocity, Zoom, DocuSign, Navan, monday.com, Asana, Workiva, BlackLine, RingCentral, 8x8, Box, Dropbox
5. GTM (MarTech & SalesTech) (18 companies)
Anything bought out of the revenue org. Marketing automation, sales engagement, CRM, ad tech, customer experience.
Salesforce, Adobe, HubSpot, The Trade Desk, Twilio, Klaviyo, Braze, ZoomInfo, Freshworks, Amplitude, Semrush, Five9, Zeta Global, Wix, Sprout Social, ON24, Yext, Criteo
6. Vertical SaaS (16 companies)
Software built for a specific industry without take-rate or transaction economics. This bucket used to include Toast, Olo, and Shopify. They don’t belong here. They make money on transaction volume, not seat licenses or SaaS usage. They’re in #7 now.
Palantir, Autodesk, Veeva, Aspen Technology, Samsara, ServiceTitan, Guidewire, Tyler Technologies, Doximity, Procore, AppFolio, CCC Intelligent Solutions, Blackbaud, nCino, CareCloud, CS Disco
7. Take-Rate Platforms (19 companies)
Marketplaces and commerce platforms that earn money on transaction volume. This is a new bucket. It’s the single biggest reason your old Vertical SaaS median was hard to use, especially if you’re a hospitality or commerce CFO trying to find your comp set.
Uber, Airbnb, Shopify, MercadoLibre, DoorDash, eBay, Zillow, CarGurus, Instacart, Etsy, Toast, Lyft, Opendoor, StubHub, Olo, Upwork, Udemy, Ethos, Fiverr
8. Payments & Money Movement (11 companies)
The rails. Payment processors, payment infrastructure, B2B payments, treasury. Volume game, utility margins. Used to be jumbled in with consumer fintech in a 28-company FinTech bucket. Now they’re on their own.
Intuit, Fiserv, Adyen, PayPal, Block, Shift4, BILL, Clearwater Analytics, Flywire, Marqeta, Lightspeed
9. Consumer Fintech, Lending & Crypto (16 companies)
The front-end. Consumer-facing financial apps, BNPL, lending platforms, crypto exchanges. CAC-driven, marketing-heavy, totally different unit economics from #8.
Coinbase, Robinhood, SoFi, Chime, Affirm, Upstart, Circle, Bullish, Figure, Klarna, Sezzle, Gemini, Blend, Remitly, MoneyLion, LendingClub
What got cut
Seven names came off the universe entirely. All legacy hardware or infra that didn’t fit anywhere clean and was dragging medians around, as well as a couple others who were increasingly less relevant: HPE, NetApp, Lumen, Rackspace, Cisco, Newegg, BigCommerce.
Total universe is now 138 companies.
The new charts are below.
Revenue Multiples
Revenue multiples are a shortcut to compare valuations across the technology landscape, where companies may not yet be profitable. The most standard timeframe for revenue multiple comparison is on a “Next Twelve Months” (NTM Revenue) basis.
NTM is a generous cut, as it gives a company “credit” for a full “rolling” future year. It also puts all companies on equal footing, regardless of their fiscal year end and quarterly seasonality.
However, not all technology sectors or monetization strategies receive the same “credit” on their forward revenue, which operators should be aware of when they create comp sets for their own companies. That is why I break them out as separate “indexes”.
Reasons may include:
Recurring mix of revenue
Stickiness of revenue
Average contract size
Cost of revenue delivery
Criticality of solution
Total Addressable Market potential
From a macro perspective, multiples trend higher in low interest environments, and vice versa.
Multiples shown are calculated by taking the Enterprise Value / NTM revenue.
Enterprise Value is calculated as: Market Capitalization + Total Debt - Cash
Market Cap fluctuates with share price day to day, while Total Debt and Cash are taken from the most recent quarterly financial statements available. That’s why we share this report each week - to keep up with changes in the stock market, and to update for quarterly earnings reports when they drop.
Historically, a 10x NTM Revenue multiple has been viewed as a “premium” valuation reserved for the best of the best companies.
Efficiency
Companies that can do more with less tend to earn higher valuations.
Three of the most common and consistently publicly available metrics to measure efficiency include:
CAC Payback Period: How many months does it take to recoup the cost of acquiring a customer?
CAC Payback Period is measured as Sales and Marketing costs divided by Revenue Additions, and adjusted by Gross Margin.
Here’s how I do it:
Sales and Marketing costs are measured on a TTM basis, but lagged by one quarter (so you skip a quarter, then sum the trailing four quarters of costs). This timeframe smooths for seasonality and recognizes the lead time required to generate pipeline.
Revenue is measured as the year-on-year change in the most recent quarter’s sales (so for Q2 of 2024 you’d subtract out Q2 of 2023’s revenue to get the increase), and then multiplied by four to arrive at an annualized revenue increase (e.g., ARR Additions).
Gross margin is taken as a % from the most recent quarter (e.g., 82%) to represent the current cost to serve a customer
Revenue per Employee: On a per head basis, how much in sales does the company generate each year? The rule of thumb is public companies should be doing north of $450k per employee at scale. This is simple division. And I believe it cuts through all the noise - there’s nowhere to hide.
Revenue per Employee is calculated as: (TTM Revenue / Total Current Employees)
Rule of 40: How does a company balance topline growth with bottom line efficiency? It’s the sum of the company’s revenue growth rate and EBITDA Margin. Netting the two should get you above 40 to pass the test.
Rule of 40 is calculated as: TTM Revenue Growth % + TTM Adjusted EBITDA Margin %
A few other notes on efficiency metrics:
Net Dollar Retention is another great measure of efficiency, but many companies have stopped quoting it as an exact number, choosing instead to disclose if it’s above or below a threshold once a year. It’s also uncommon for some types of companies, like marketplaces, to report it at all.
Most public companies don’t report net new ARR, and not all revenue is “recurring”, so I’m doing my best to approximate using changes in reported GAAP revenue. I admit this is a “stricter” view, as it is measuring change in net revenue.
OPEX
Decreasing your OPEX relative to revenue demonstrates Operating Leverage, and leaves more dollars to drop to the bottom line, as companies strive to achieve +25% profitability at scale.
The most common buckets companies put their operating costs into are:
Cost of Goods Sold: Customer Support employees, infrastructure to host your business in the cloud, API tolls, and banking fees if you are a FinTech.
Sales & Marketing: Sales and Marketing employees, advertising spend, demand gen spend, events, conferences, tools.
Research & Development: Product and Engineering employees, development expenses, tools.
General & Administrative: Finance, HR, and IT employees… and everything else. Or as I like to call myself “Strategic Backoffice Overhead.”
All of these are taken on a Gaap basis and therefore INCLUDE stock based comp, a non cash expense.
Please check out our data partner, Koyfin. It’s dope.
Wishing you trade at a high revenue and EBITDA multiple,
CJ
