Teng: Growth-to-FCF valuation premium dropped from 6:1 in 2021 to 2:1
Janelle Teng · State of the Cloud 2023 with Bessemer Venture Partners · Sep 20, 2023 · at 6:46
Janelle Teng presents Bessemer's heuristic measuring how public markets weight growth versus profitability in cloud valuations.
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“At peak bull market exuberance, so this was the end of 2021, a one percent improvement in revenue growth had the same impact on valuations As a six percent improvement in free cash flow margin. So said another way, growth was more important than profitability by a factor of six at the height of bull markets. Today, this ratio is closer to two to one, still in favor of growth, but certainly a bit more balanced from what we saw in the bull market years.”
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