Version Update | Why Public Markets Are Punishing Software Companies (Eran Zinman & Eliran Glazer)

**Darya Wertheim** (0:00)
Hi, everyone, I'm Daria Wertheim, and you've tuned in to Startup for Startup for the series where we talk about how AI is changing and reshaping Monday.
Today, we're talking about the public market during the AI revolution, and joining me here is Eran Zinman, founder and co-CEO of Monday. Hi, Eran.

**Eran Zinman** (0:18)
Hi, Daria.

**Darya Wertheim** (0:18)
And Eliran Glazer, our CFO.

**Eliran Glazer** (0:20)
Hello, Daria.

**Darya Wertheim** (0:21)
So today, we're going to talk about the market's reactions to the uncertainty during this period, what's happening with the stock prices of SaaS companies, and also how we view it here at Monday. Let's get started.
Eliran, maybe let's start with you. Tell us a bit about what happened in the public market. Let's talk about the SaaS world over the past six months, which feels like it's been the most turbulent period.

**Eliran Glazer** (0:57)
Yeah, that's true for the SaaS world, but also for other tech companies. What has actually happened over the past year, and has perhaps intensified over the last six months, is a very significant drop in the valuation of software companies, especially in the SaaS space. Companies have seen their valuations slashed by anywhere from 50% to 75% compared to where they stood six months or a year ago. The reason for this, of course, stems from the AI space and the sheer uncertainty gripping the markets because of everything happening with AI.
Lately, we're seeing how a single tweet from Anthropic can tank one sector or another. Just to give an example, a few days ago, they put out a tweet about things that could potentially rival or compete with what IBM does.
And IBM dropped 13 percent. And every day, it's something else. They put out a tweet about the cyber world, and cybersecurity companies dropped by 10 percent that same day. I think the market panic is a product of very, very deep fears. Companies have been hammered in their valuations, and everyone has to navigate this environment of total uncertainty, which is impacting the entire industry.

**Darya Wertheim** (2:09)
It also affects the private market.

**Eran Zinman** (2:11)
Yeah. Look, let's put it this way. What we're experiencing in the public market, like Eliran said, is uncertainty, probably some of the greatest I've ever seen in the software sector. Not that there wasn't uncertainty in the past. You know, we're constantly in some kind of cycle.

**Darya Wertheim** (2:25)
Yeah. Most of us have been around for a while, and we remember all kinds of bubbles that burst.

**Eran Zinman** (2:29)
Exactly. By the way, both on the positive side and the negative side. But I think that today, the dimension of uncertainty is highly significant. You have to understand that a company's valuation isn't derived from its performance today, but from its future. Meaning, when investors invest in a company and determine its value, a lot of that valuation is derived from the future, not from the last earnings call.

**Darya Wertheim** (2:54)
Right.
It's worth mentioning that the three of us actually did a series on this a while back. I don't know if you remember, but we talked a lot about stock prices and what they mean and how to look at them. So for anyone who wants to dive deeper, it's probably worth going back to that because we explain all those terms in much more depth there.

**Eran Zinman** (3:11)
I think we need to start by looking at what came before because everything happens relative to something else. Historically, software companies have always enjoyed a certain level of stability. It's not that there aren't companies in the world trading at a one times revenue multiple, right? It's not like it's a law of nature that a company has to trade at a ten times revenue multiple.
There are all kinds of companies. But software companies historically enjoyed high multiples. There are many reasons for this, but one of them is that they were highly predictable. The SaaS model specifically created a massive amount of confidence. If you look at historical software companies that are SaaS, their revenue range is usually pretty tight. These companies know how to provide guidance with relative confidence and they're right a lot of the time. You know how customers will behave as a cohort when it comes to expansion. In short, it's a business with a lot of certainty. More than that, I'll tell you, before AI, nobody ever imagined that people would stop using software, right? So there was also confidence about the future, unlike other industries where you might say maybe tomorrow there will be new regulation or maybe tomorrow people will stop consuming a certain product. I don't know, maybe people will stop drinking Coca-Cola or whatever for a thousand and one reasons. With software, there was the sense that it was an island of stability, both in terms of the ability to give forecasts and in terms of the fact that people would continue to consume software in the future. And suddenly into a sector that was historically highly stable, the most extreme instability enters, pulling it in the exact opposite direction. Where suddenly investors are saying, wow, we don't know anything.