Software inventories give up even more ground – Techdoxx

Deepak Gupta January 13, 2022
Updated 2022/01/13 at 9:55 PM

Quick blog here to update you on some very important market movements. Today, in an unpleasant day for equities in general, shares of software and cloud companies took a hit.

Numerically, the Nasdaq Composite lost 2.51%, by CNBC data. This is a very bad day for a huge and critical category of publicly traded wealth. And then the Bessemer Cloud Index, our favorite method of tracking a more targeted basket of modern software concerns, plummeted 5.45% during regular trading.

That’s a lot of value deleted in a single day. But since the declines come after the critical startup rate has already seen sharp drops recently, it was an insult to the injury. Here’s the graph:

Image credits: YCharts

You need to collect two things from this graphical data collection:

  1. Software stocks have returned more than all their gains since late 2020 and are down more than 30% from recent highs. This is very bad.
  2. Software stocks remain richly valued and are worth much more than they were in early 2020, a period of approximately two years ago. That is great.

So things are not great, but not terrible, for modern public software companies either.

The question Ploonge continues to track is how quickly – if at all – the declines shown above begin to seep into startup valuations. We’re seeing some cuts in the public-private market divide, where IPOs and direct listings try to take companies from one shore to the other. But in terms of fundraising momentum for startups, you wouldn’t know that revenue multiples are taking a huge cut in public markets. For most startups, these are still heady days.

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