Consolidation In Talent Management

Taleo (NASDAQ:TLEO) and SuccessFactors (NASDAQ:SFSF) are the leaders in the talent management market with revenues of almost $200 million each. The rest of the market is trying to catch up through acquisitions. Let’s take a closer look.

SuccessFactors, with 2009 revenue of $153.1 million, recently reported second quarter results that beat analyst estimates. Revenue grew 27% y-o-y and 7% q-o-q to $46.8 million, beating analyst estimate of $45.5 million. Net loss widened to $4.48 million, or $0.06 per share, from a loss of $2.32 million, or $0.04 per share, last year. The company broke even on a non- GAAP basis, in line with both the Street consensus and the company’s own guidance. Q1 coverage is available here,  and my interview with CEO Lars Dalgaard is here.

SuccessFactors also raised its guidance for the fiscal year. It now expects full-year 2010 non-GAAP revenue of $198 million to $200 million, up from earlier GAAP revenue guidance of $180 million to $182 million. It expects break-even EPS for the year, while analysts expect a profit of $0.02 per share. For the third quarter, SuccessFactors expects to break even on non-GAAP revenue of $52.5 million to $53.5 million, including revenue from acquisitions.

SuccessFactors this year acquired Inform Business Impact, a SaaS vendor in HR, talent analytics, and workforce planning, for about $40.5 million and CubeTree, a social enterprise platform, for about $50 million.  It recently signed its first joint customer, The McGraw-Hill Companies, with Inform. SuccessFactors is trading around $20 with market cap of about $1.5 billion. It hit a 52-week high of $23.75 on July 27 after its earnings report.

It’s been some time since Taleo made an acquisition. The company acquired WorldWide Compensation for $16 million in September of last year and Vurv in 2008 for $128.8 million.

Taleo, with 2009 revenue of $198.4 million, recently reported second quarter results that beat estimates. Revenue grew 15% to $56.3 million driven by a 12% rise in application revenue. Net loss was $1.4 million, or $0.04 per share, compared with net loss of $0.1 million, or $0.01 per share, last year and profit of $0.08 million, or $0.02 per share, last quarter. Adjusted EPS was $0.14, beating analyst estimates of $0.12 on revenue of $55.7 million. Q1 coverage is available here , and my interview with CEO Michael Gregoire is here.

Taleo signed 226 new customers in the quarter and closed eight large enterprise deals with annual contract values in excess of $250,000. Cash flow from operations was $9.9 million, and the company ended the quarter with total cash of $244.9 million.

Last week, Taleo announced that Jonathan Schwartz and Jim Tolonen have been appointed to its board of directors. Schwartz is the former CEO of Sun, which was recently acquired by Oracle. Tolonen is a former chief financial officer for Business Objects SA, which was acquired by SAP. Taleo is trading around $24 with market cap of about $944 million. It hit a 52-week high of $27.93 on April 20.

The year’s first acquisition on the talent management market was that of Peopleclick by Authoria; the acquisition brought Authoria’s revenue to about $100 million. Another company that is going the acquisition route is StepStone, a European talent management company. It acquired MrTed, a SaaS talent acquisition software player in the Central European and North American markets. With the acquisition, Stepstone also has revenue close to $100 million and about 1,700 customers.

Madeline Laurano, a Bersin and Associates analyst, says the European market will eventually be as big or bigger than the U.S. market but is two to three years behind it in penetration. Both Taleo and SuccessFactors are expanding their operations in Europe and, StepStone was seen as a possible acquisition target for them. Peter Gold of Hire Strategies last year also reported a rumor that MrTed would be acquired by SuccessFactors.

An interesting SaaS talent management company that I recently came across in my 1M/1M roundtables is an Indian company, SurgeForth. The SaaS market for Asia Pacific was $500 million in 2009 and is expected to double by 2011. The SaaS HCM market in  Asia Pacific is about $35 million. India’s SaaS HCM market in 2011 is expected around $7 million. SurgeForth’s target is to capture 10%, or $0.7 million, of the Indian HCM market by 2011. But SurgeForth has the potential to be another Zoho, undercutting U.S. prices by 70%–80%. For more coverage, read guest author Praveen Kumar’s post on the company in the 1M/1M Incubation Radar series.

I earlier suggested that Salary.com (NASDAQ:SLRY), which has a market cap of about $50 million and annual revenue of $45.75 million, would be a good acquisition target for both SuccessFactors and Taleo. My interview with Salary.com’s founder and former CEO Kent Plunkett is here. Bill Kutik of Human Resource Executive Online quotes the IDC MarketScape: Worldwide Integrated Talent Management 2010 Vendor Analysis report: “Of all the vendors, Salary.com has the most content available to enable talent processes.” The talent management space is consolidating rapidly, and I am curious to see who gets to Salary.com first.