Coronavirus impact | SaaS firms may see 10% drop in revenue, delay in new deals

India-based Software-as-a-Service (SaaS) startup expect 10-25 percent drop in revenue and deal deferrals as the Novel Coronavirus, or COVID-19, pandemic continues to spread across the world, impacting business operations.

Suresh Sambandam, CEO, KiSSFLOW, a workplace automation software, said the industry may see a 10 percent revenue hit in the short term, which may rise to 25 percent since it is impacting global firms.

A recent NASSCOM report pegs the Indian SaaS market at $3.3-3.4 billion in 2020.

How are SaaS firms impacted? Most revenues for Indian SaaS players come from overseas, primarily the US. Due to COVID-19, major businesses are disrupted, in turn affecting their service providers, including SaaS firms.

Also, IT spends are discretionary. As firms clampdown on spending and minimise cost, discretionary spending will see a cut.

In an earlier interaction, Krish Subramanian, co-founder, Chargebee, an automated subscription billing software, explained that if the discretionary spending is $200 million, more than 50 percent of it went to SaaS services. This spending is likely to reduce.

Prasanna Krishnamoorhy, co-founder, Upekkha, a platform that helps SaaS startups, said it will impact startups that cater to both enterprises and small and medium businesses. “While the enterprise startups will be able to sustain, the ones catering to the small and medium businesses may not be able to,” he added.

Krishnamoorthy explained that large enterprises cannot just stop using a software, customer relationship management service for instance, all of a sudden, given that the CRM software is essential for them to run their business. “So, they will continue to use the software,” he added. But for SMBs, it might not be the case.

“New deals are unlikely to happen and this will impact growth,” Krishnamoorthy pointed out.

Major transformation deals, where SaaS firms play a major role, are likely to be suspended now and existing contracts may be delayed.

Ashish Tulsian, co-founder, Posist, which provides restaurant management platform, said the company expects growth to slow down by 15 percent if the situation continues. The company, so far, has been growing at 35 percent quarter-on-quarter (QoQ). But because of the coronavirus pandemic, he expects it to fall to 20 percent QoQ growth.

“Our best period is the January to March quarter and we are definitely impacted due to COVID-19. We expect the impact to last for the next two quarters as we see delay in the start of new projects and payments from clients,” he added.

Most of Posist’s clients, including restaurant chains, fine dining and individual restaurants, are in India and across 20 countries overseas.

Postponing expansion plans, IPO While there has not been any cancellations yet, clients are delaying projects and in some cases payments have been delayed. In SaaS, payments are annualised. Considering that most sectors are suffering, firms like Posist are exploring monthly or quarterly payment options for the time being.

The company is also contemplating its overseas expansion plans as well. “We were planning to open operations in London in October. It is too early to cancel. But depending on how the situation develops, we will take a call by May-end,” he added.

Another SaaS entrepreneur pointed out that any major decision such as planning an initial public offering (IPO) is likely to be deferred as well. “Clearly now is not a good time and getting good returns when the market sentiment is down is unlikely. So, firms may not go in for an IPO,” he added.

One of the companies looking at an IPO was Freshworks. It is readying for an offer in the US markets and was exploring both an NYSE and Nasdaq listing.