Why This Book Exists

Recurring revenue is not automatically high-quality revenue. A beautiful gross margin does not guarantee real shareholder returns. And a great software company is not always a great stock.

Those distinctions are the starting point of Compounding in the Cloud. The subscription model made software businesses more predictable, cumulative, and scalable. But the label “SaaS” guarantees none of those qualities. Growth can be purchased through expensive sales spending; free cash flow can be flattered by stock-based compensation; recurring revenue can conceal weak retention; and even an exceptional company can be a poor investment when its price assumes years of flawless execution.

This book gives you a reusable framework to:

• connect ARR, NRR, RPO, CAC payback, the Rule of 40, and free cash flow;
• separate organic growth from acquisitions, price increases, and cyclical usage;
• examine stock-based compensation, dilution, and cash-flow quality;
• assess moats built on workflow position, data, switching costs, and distribution;
• understand how AI may reshape software margins, pricing, and competitive entry points;
• use reverse DCF, scenarios, scorecards, and kill criteria to test an investment thesis.

The goal is not to hand you a stock list that quickly becomes stale. It is to provide a research system that can be reused, challenged, and updated for any software company.

The book focuses on US-listed SaaS and cloud-software businesses. Company data use a June 30, 2026 anchor, with SEC EDGAR material retrieved through July 15, 2026.