Introducing the BVP Nasdaq Emerging Cloud Index
Five years ago, we launched the BVP Cloud Index, which became the benchmark for the rapidly expanding universe of public cloud computing companies. Today, in partnership with Nasdaq, we’re excited to unveil the next generation of our cloud index: the BVP Nasdaq Emerging Cloud Index, an industry index designed to track the performance of emerging public companies primarily involved in providing cloud software to their customers. The index, listed as EMCLOUD, brings together the complementary expertise of Nasdaq, which has a long-established history of creating indexes, and Bessemer Venture Partners, which has been at the forefront of investing in cloud computing companies over the past two decades.
Because we’ve long believed in the power of the cloud, in addition to launching the BVP Cloud Index we have also worked to plant our flag in the ground (or rather, the cloud) in other ways: publishing the 10 Laws of Cloud Computing and our annual State of the Cloud Industry report; co-producing The Cloud 100 to celebrate the leading private cloud companies; and partnering with 150 cloud companies that have gone on to produce 11 IPOs, dozens of sizable M&A exits, and many hyper-growth private cloud companies.
The cloud industry’s growth potential is tremendous. In fact, when the BVP Index launched in 2013 it’s market cap was under $100Bn. Today the market cap is close to $700Bn, and there are five times as many public cloud companies as there were 10 years ago. Now with the BVP Nasdaq Emerging Cloud Index, cloud has matured to the point that it is primed to have a stock market index to call its own!
How We Got Here
While cloud computing has become the most important trend in the software industry, a decade ago the dominance of the cloud was far from obvious. Eventually, the acknowledgement of certain product and business model advantages gradually cemented cloud as being the status quo for computing.
On the product side, deploying via cloud allowed companies to deploy software updates quickly, efficiently, and at scale; to more easily expand to foreign markets; and to automate service delivery such that customer acquisition could happen 24/7. And on the business side, companies took the benefits of predictable, annuity-like revenue, lower R&D costs without the need to support multiple stacks, and higher customer stickiness given embedment into workflow.
Customers, on the other hand, were happy to move their costs from CapEx to OpEx, to enjoy a lower barrier to trying services without contract lock-in, and to pick solutions feature by feature. There are drawbacks to cloud, too, including high working capital requirements that require a lot of up-front cash, but over time investors understood the beneficial cash flow payoff implications of steepening a cloud company’s growth curve up-front. Today, the question is not, “Why should you be a cloud company?” but, “Will your growth continue?”.
And, as we look back, it’s important to remember that the growth of cloud is far from over. In the next few years we will see new cloud trends materialize from the continued rise of the developer to the propagation of verticalization, software-defined infrastructure models, machine learning enablement, and payments-as-a-service. As companies leveraging these trends continue to grow, including those on the Forbes Cloud 100, we will see more waves of cloud IPOs. Cloud computing continues to be a dominant force worth market time and attention.
A New Index to Track the Growth of the Cloud Industry
While past performance is not indicative of future results, the cloud computing industry is well positioned to continue on its growth trajectory. We hope the BVP Nasdaq Emerging Cloud Index will offer industry participants a benchmark for the performance of the emerging public cloud computing market.
We leveraged our deep expertise in Cloud to develop an objective definition that categorizes companies in the industry and we partnered with Nasdaq, given their long-established history of creating indexes and ability to deliver the most accurate real-time data. There are a number of companies in the BVP Nasdaq Emerging Cloud Index that were not part of the BVP Cloud Index due to the new index’s refined eligibility requirements. For example, Adobe is included in the initial index given that it has masterfully transitioned to a cloud company, and 2018 cloud IPOs DocuSign, Dropbox, Zuora, and Zscaler have been included as well. Additionally, given the partnership with Nasdaq, we believe the new benchmark will be even more reflective of the sector’s performance as the index will be calculated on an equal-weighted basis and employ Nasdaq’s index maintenance and rebalancing standards.
The BVP Nasdaq Emerging Cloud Index (EMCLOUD) at a Glance
- There are currently 46 companies on the index with a combined market cap of $690 billion
- Their average age is ~15 years old, with ~5 years public and ~10 years as a private company
- They are still growing an average of ~35% year-over-year
- They have an average of ~10% FCF margin
- They trade at an average of 11x EV/current run rate revenue and 9x EV/forward run rate revenue
In addition, EMCLOUD has increased ~370% since 2013, versus the Nasdaq Composite, S&P, and Dow that increased ~120%, ~75%, and ~75%, respectively. LTM EMCLOUD increased ~85%, while Nasdaq increased ~25%, S&P ~20%, and Dow ~20%.
The Cloud Computing Revolution Marches On
We appreciate the opportunity to be a part of this ever-expanding cloud community, and we are extremely excited to continue to provide the benchmark for the growth cloud industry, now in partnership with Nasdaq. We look forward to welcoming more companies added to this index over time.
Find the BVP Nasdaq Emerging Cloud Index here: https://indexes.nasdaqomx.com/Index/Overview/EMCLOUD
-Byron Deeter, Kristina Shen, Mary D’Onofrio