Why Investors Love SaaS Subscriptions (and Where the Model Bites)
TL;DR (3 bullets)
- Subscription revenue is predictable, recurring, and sticky, which reduces earnings volatility and often supports higher valuation multiples.
- Leaders tend to excel on NRR (net revenue retention), high gross margins, and the Rule of 40 (growth + margin).
- Risks remain: seat cuts during macro slowdowns, usage optimization for consumption models, and pricing fatigue if value doesn’t keep up.
This post is for education, not investment advice.
The dataset we’re looking at
Below is a consolidated table of U.S.-based, SaaS-centric companies ranked by recent subscription revenue across the last three fiscal years (2022–2024).
Numbers reflect each company’s reported subscription revenue (or the closest recurring line item) and the share of total revenue it represents.
How to read it
- Fiscal calendars differ (e.g., January vs. December year-ends).
- Some companies label revenue as “subscription & support” (e.g., Salesforce), while usage-based platforms (e.g., Snowflake) recognize recurring revenue under “product”—we list the closest like-for-like recurring line item.
- Unit below is USD billions.
Top U.S. SaaS companies by subscription revenue (FY 2022–2024)
Unit: USD billions
| Company | 2022 Sub. Rev. | 2023 Sub. Rev. | 2024 Sub. Rev. | % of Total Rev. | Notes |
|---|---|---|---|---|---|
| Oracle | 30.20 | 35.30 | 39.40 | ~70–74% | “Cloud services & license support” (mixed; not pure SaaS) |
| Salesforce | 24.70 | 29.02 | 32.54 | ~92–93% | “Subscription & support” dominates |
| Adobe | 16.38 | 18.28 | 20.52 | ~93–95% | Subscription across Digital Media/Experience |
| Intuit | 9.60 | 11.00 | 12.50 | ~75–77% | Platform recurring (Mailchimp, QuickBooks Online, etc.) |
| ServiceNow | 6.89 | 8.68 | 10.65 | ~95–97% | Subscription vs. small professional services |
| Workday | 4.55 | 5.57 | 6.60 | ~88–90% | Subscription services |
| Autodesk | ~4.10 | ~4.65 | ~5.10 | ~93–94% | Predominantly recurring (subscription/maintenance) |
| Zoom | 4.10 | 4.39 | 4.66 | ~95%+ | Virtually all subscription |
| Splunk | ~2.67 | ~3.65 | ~4.22 | ~90%+ | Subscription mix rising (pre-acquisition) |
| Snowflake | 1.14 | 2.00 | 2.68 | ~95–97% | “Product revenue” (usage-based recurring) |
| DocuSign | ~2.05 | ~2.45 | ~2.65 | ~98% | E-signature, minor services line |
| HubSpot | 1.68 | 2.12 | 2.57 | 97–98% | Subscription ~98% in 2024 |
| Dropbox | 1.70 | 2.23 | 2.55 | ~100% | Cloud storage subscriptions |
| Datadog | 1.03 | 1.68 | 2.68 | ~100% | Usage-based SaaS; reported as subscription |
| Veeva Systems | 1.48 | 1.73 | 1.90 | ~80% | Life-sciences cloud; subscription core |
Methodology & caveats
- Figures compile company-reported subscription (or nearest recurring) lines; definitions and fiscal calendars vary.
- Some entries (e.g., Oracle, Snowflake) reflect mixed or usage-based recognition; included to represent recurring software revenue at scale.
- Always cross-check with the latest 10-K/10-Q/Annual Report before using for investment decisions.
Why subscriptions are so powerful (from an investor’s seat)
1) Predictability beats raw growth in the long run
Recurring contracts create forward revenue visibility, which lowers earnings volatility and often supports higher EV/Revenue and EV/FCF multiples. CFOs can plan hiring and product roadmaps with fewer surprises; investors can underwrite cash flows with tighter ranges.
2) Software’s gross-margin advantage → operating leverage
SaaS typically operates with high gross margins because serving the next customer has relatively low incremental cost (hosting/support vs. physical goods). As revenue scales, operating leverage kicks in—R&D and go-to-market costs stretch over a larger base—often expanding FCF margins over time.
3) The flywheel called NRR (net revenue retention)
When NRR ≥ 100%, upsell and cross-sell on existing accounts offset churn—the base expands even before net-new logos arrive.
- Seat-led platforms (Salesforce, ServiceNow, HubSpot) win by landing a team and expanding to more users/modules.
- Usage-led platforms (Snowflake, Datadog) win as customers’ data/traffic grows.
Either way, NRR is the tell for product indispensability.
4) Rule of 40: sanity check for growth + efficiency
A handy heuristic: growth rate (%) + operating margin (%) ≥ 40.
Leaders typically meet or approach this threshold by flexing between growth (earlier stage) and profitability (maturing stage). It’s not a law, but it’s a useful discipline lens for capital allocation and incentives.
5) Backlog and deferred revenue = visibility buffer
Multi-year SaaS deals accumulate RPO/backlog and deferred revenue, acting like a reservoir of future revenue. In choppy macro, this reservoir can soften drawdowns and steady cash collections (especially when customers pay annually upfront).
6) Seat vs. usage: different sensitivities, different optionality
- Seat-based shines when customers hire and expand; it’s vulnerable when headcounts shrink.
- Usage-based scales in bull runs as data/traffic explode; it can wobble when customers optimize spend.
Understanding a company’s revenue recognition mechanics helps you anticipate how it behaves through cycles.
7) Pricing power hinges on real, felt value
Mature platforms compound via price increases and suite bundling—but only when product value expands (new features, AI copilots, workflow automation). Without that, price hikes risk churn or down-tiering. Watch value per seat and attach rates.
A simple SaaS checklist (not advice, just a starting framework)
- Revenue mix: How much is true subscription vs. one-off services? Seat vs. usage breakdown?
- Customer stickiness: NRR/GRR trends? Upsell engines (modules, tiers, bundles)?
- Efficiency: Gross margin, operating/FCF margin trajectory; Rule of 40 over 1–3 years?
- Visibility: RPO/backlog and deferred revenue growth; annual upfront billings?
- Pricing power: What happens to churn when prices rise? Is AI/product expansion lifting willingness to pay?
- Macro sensitivity: More exposed to seat cuts or to usage optimization?
- Moat/lock-in: Switching costs, ecosystem integration, data gravity, or compliance moats?
Quick mini-cases (3 flavors of strength)
-
Salesforce (seat-led + suite expansion)
Broad product family (Sales/Service/Marketing/Data/AI) powers land-and-expand. Enterprise exposure adds visibility, but seat exposure is cyclical. -
Adobe (pricing power + industry standard)
Creative Cloud’s de facto standard status supports value-based pricing and high margins. AI features deepen lock-in—so long as creators feel the value. -
Snowflake/Datadog (usage flywheels)
As data/observability needs grow, spend naturally scales with customer success. The flip side: cost optimization cycles are visible in-quarter. Watch cohort spend growth and new-product attach.
Bottom line
Great SaaS companies become habits at the individual, team, and enterprise level. Once work runs through them, ripping and replacing is costly—financially and organizationally. That’s the engine behind the recurring, high-margin, and scalable subscription model.
If you’re analyzing names from the table, start with stickiness (NRR), pricing power, and efficiency (Rule of 40, FCF)—then pressure-test how each model behaves when headcount freezes or usage gets optimized. Subscriptions can be beautiful, but the mechanics matter.
Reminder: This article is not investment advice. Always verify figures in the latest company filings before making decisions.
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