RackSpace trades at 0.2 times sales right now. Yes, you read that right.
The markets hate SaaS today. This morning, I found three of the most beaten-down SaaS companies out there.
Everyone is convinced that AI will kill SaaS. This means that you can pick up these stocks for next to nothing.
The markets aren’t entirely wrong. A lot of these companies are bloated and poorly run.
But when sentiment is at its lowest, that’s usually the time to buy. Let’s take a tour of three of the most hated companies in SaaS.
OpenText: The Forgotten Cybersecurity Giant
OpenText is a Canadian cybersecurity company that the markets have left for dead. It trades at just 1.2x revenues.
Unlike a lot of beaten-down SaaS companies, OpenText is profitable.
It pulled in $436M in profit in the last year, putting the stock at a PE of 15. Revenue declined, but remains up substantially from 2023.
OpenText is an extremely bloated company. It employs over 21,000 people to produce $5.2 billion a year in revenue.
That’s just $244,000 in revenue per employee. Compare that to Robinhood, which produces almost as much revenue with just 2,900 people.
Mass layoffs could do wonders for OpenText. But until then, OpenText trades for about what it deserves.
RingCentral: More Bloated Payrolls
RingCentral lets you call and text customers across all your devices. Sounds useful, right?
But investors have abandoned RingCentral. It trades at about 1 times revenue.
The company is growing modestly at about 4% year over year. It made a small profit of $13M last year on $2.5 billion of revenue.
RingCentral is not as bloated as OpenText. Still, they need to do layoffs. They’re employing 4,300 people right now to produce around half the revenue of Robinhood.
Minimal growth, minimal profit, bloated payroll…no wonder RingCentral is in the dumps!
RackSpace: The Most Hated Company in SaaS?
As miserable as OpenText and RingCentral have performed, they’re nothing compared to the ugliest duckling of SaaS: RackSpace.
RackSpace trades at 0.2 times revenue. I’ve never seen a multiple this low in my life.
RackSpace helps companies deploy cloud services. Revenue has declined for three straight years and losses hit nearly $250 million last year.
RackSpace employs 5,100 people to produce these miserable results. What the hell do they do?
If RackSpace had the same revenue to employee ratio as Robinhood, they’d employee 2/3rds fewer people.
Shareholders are left with declining revenue, massive losses, and an obese payroll. Maybe this stock deserves to trade even lower?
Wrap-Up
There’s one way these terrible companies could not just recover, but become extremely valuable: mass layoffs.
Most CEO’s don’t have the courage to axe half the company like Jack or Elon. But what if they didn’t have to?
These companies are perfect targets for private equity. And believe me, the private equity guys are not afraid to fire people.
I’d have more sympathy if these were blue-collar factory workers. But these are well-off, white collar employees getting a free ride.
How much do you want to bet they work an hour a day? That was the standard when I was in Big Tech!
Corporate raiders coming through with chainsaws is ugly. But it’s a necessary part of capitalism.
Expect to see buyouts hit the tape soon.
Have a great weekend, everybody!
More on tech:
Six Reasons Why the Citrini Report Is Wrong
SaaS Isn’t Dead — Time to Buy the Dip?
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