NTM stands for Next Twelve Months and is a commonly used valuation multiple for SaaS companies, along with metrics like NTM revenue and NTM EBITDA. High-growth SaaS companies can obtain higher NTM valuation multiples thanks to their growth potential, allowing investors to assign different multiples based on future prospects. As a pioneer in cloud data warehousing, Snowflake obtained an exceptionally high NTM multiple owing to superb product advantages and tremendous market space.
NTM is a forward-looking SaaS valuation metric
In the world of SaaS investing, NTM or Next Twelve Months refers to financial and operating metrics projected for the coming 12-month period. It allows investors to value high-growth companies based on near-future performance rather than just historical results. The most common NTM metrics are NTM revenue and NTM EBITDA. Combined with revenue growth rates, these multiples indicate the premium investors are willing to pay for future earnings growth.
Hyper-growth companies can achieve higher NTM multiples
Since rapidly expanding SaaS firms have vast untapped market potential, investors tend to assign them higher NTM multiples in anticipation of windfall growth ahead. For mature low-growth companies, lower NTM multiples are more appropriate as returns diminish. So the projected pace of growth is key in determining the appropriate NTM multiple when analyzing SaaS investments.
Snowflake commands steep valuation thanks to market-leading product and TAM
As a pioneer in cloud-based data warehousing, Snowflake has made it vastly easier for enterprises to aggregate and analyze data in the cloud. With best-in-class capabilities like performance, flexibility and low cost, Snowflake has emerged as the clear category leader. Combine this with a $80 billion+ addressable market in cloud data platforms, and it’s no wonder investors awarded Snowflake with a stellar 120+ times NTM revenue multiple upon IPO.
In summary, NTM investing focuses on the future growth potential of SaaS companies. Superior product, large market opportunity and triple-digit revenue expansion can justify the lofty NTM multiples attained by elite high-growth companies like Snowflake.