Industry Scorecards

Some time, I ago, I compared the valuations of public companies in our industry to a couple of key software and internet companies.  Click here to read that blog.

That analysis compared valuations – expressed as a multiplier of annual revenue – and showed that the internet companies (Google, Yahoo) had about 2-3x the valuation of software companies (Microsoft, SAP) and about 5-10x the valuation of software/service companies serving the process industries (Intergraph, AspenTech, Matrikon).

Updating the valuation analysis some 6 months later shows little change – the internet boys still rule, and at about the same ratios.

So I cut the data a bit differently to see what I might learn.

Here is a chart showing revenues per employee vs. company valuations (revenue multiple basis).  Clearly, the market rewards those who can do more with less.

In our little group of companies, Google rules the roost with an incredible $1,080,000 of annual revenue per employee.  This works out to a company valuation of almost $18million per employee, dwarfing all others.

So what do we make of all this? 

The market rewards those who do more with less. 

For PAS this means we will continue our drive to increase our revenues per employee – by providing higher value services and software to our customers.  This supports our ongoing quest for increased innovation, supported by our continued higher-than-peer-group investment rate.

As a private company, there is no readily-apparent valuation, so we will continue to monitor our software investment and revenue/employee metrics for our software/service businesses. 

Based on the indicators below we are leading our peer group in investment rate accompanied by a strong per-employee revenue rate, which should only get stronger over time:

                             Investment Rate      Revenue per Employee

PAS                       26%                     $156k

AspenTech              17%                      $180k

Intergraph              10%                      $156k

Matrikon                 17%                      $115k

Scorecards like these are interesting – they are both interesting spectator sport and they also provide management with valuable indicators needed to validate and/or refine their business strategies.

Let’s come back and revisit these from time to time…