I am seeing a lot of SAAS stocks, which traded at very high multiples of revenues for years, many with little to no profits, are finally dropping back to more reasonable multiples. Most are profitable or reaching a profit inflection point now. Yet they keep selling off.
As best as I can tell, the reason is that people are worried about a big new wave of agentic or LLM-based enterprise software companies that are being funded by VCs right now.
These old SAAS companies had these user interfaces that became a moat because everyone in that industry or vertical has to learn how this software worked, and there was a network effect when one software gets significant market share.
But these old user interfaces might not be as relevant when you have an agentic piece of software. You can just tell this kind of software what you want done and it does it. Plus, if you get one good “vibe coder” in your office, maybe you can tweak it to be even more specific to your company’s workflow.
And the “per seat” model of SAAS doesn’t work when AI cuts the number of seats needed.
These changes seems significant. Makes me a bit cautious to pick up any of the SAAS names that have fallen a lot.
Anyone worried about this?