Reviewing Australian SaaS Businesses Through the Rule of 40

Last year, narrow-moat Xero’s new CEO announced that under her tenure, the company would “look to” the so-called Rule of 40, which is a commonly used metric to assess software-as-a-service, or SaaS, businesses. Although management was reluctant to set the rule as a hard target at the time, the company did end up meeting the Rule of 40 in fiscal 2024, at least by its own measurements. We believe Xero’s well-publicized pursuit of the Rule of 40 has spurred greater interest in the metric across the technology landscape in Australia. We therefore review and discuss the performance of other Australian SaaS companies against this metric. Our fair value estimates for these companies are unchanged.