The Worldlocity Software 100 Market Cap Index

Updated: Dec 22, 2019

Worldlocity recently introduced the Worldlocity Software 100 Market Cap Index. This index provides the average ratio of market capitalization to revenue for 100 of the largest public software companies (the actual index contains slightly larger than 100 companies to allow for the ebb and flow of companies moving in and out based on new companies going public and others going private). This index will be reported on a monthly (or more frequent basis) on Worldlocity's home page.

The latest reported value of index at the time of this blog is 7.1 (as shown in the picture above), which means that the average market capitalization to revenue for all the companies in the index is 7.1. This shows that software companies are richly valued; how long these rich valuations will last is anyone's guess. The broader context of these valuations is based, at least in part, on the long-term thesis that software will continue to eat the world, meaning that various activities of physical things, people, and even time will continue to be digitized into software. Please note that the value of the index will change from week to week; the 7.1 value shown in this blog was the value for the latest compilation at the time of the blog.

The revenue basis, or denominator, of the index, is based on the last-reported 10K of revenue, which is likely to slightly inflate the index, since most revenues are growing. Many companies in the index report revenues with fiscal year synchronized to calendar year, so there may be some shifting downward of the index in the Q2 timeframe each year, since that is when most revenue numbers will change, as companies publish 10Ks for the previous fiscal year.

The index is part of a broader ongoing Worldlocity analysis of software companies and the software business. An overview of the analysis can be found here, and the full report can be downloaded here.

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