Motley Fool Industry Focus had a podcast on Friday that covered SaaS companies. It’s a good intro into investing in SaaS companies. You can listen to it here:
They talk about the software industry, cover the benefits and risks of SaaS companies and recommend a few companies to look into.
Benefits they highlight are recurring revenue, little piracy, cut out the retail partner (when they used to sell CDs), opportunity for expanding revenue with current customers, high margins, high switching costs (sticky revenue), growing TAM and scale as they get more customer.
Risks include a lot of competition due to high margins, churn, high S&M spend to increase customers, lack of profitability (due to high S&M spend) and high valuations.
They recommend to focus on cost of customer acquisition, churn rate and dollar retention rate when looking at these companies.
They specifically mention CRM, SHOP, APPF, BL.