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What’s Next In SaaS?

Posted on Friday, Jun 12th 2009

Our SaaS coverage continues. We’ve seen acquisitions starting with Intuit buying PayCycle. Let’s see what’s up with, and what is SAP likely to acquire with its rather large warchest.

On May 21,, Inc. (NYSE: CRM), a pioneer in the SaaS sector with annual revenue of $1.077 billion, reported its first quarter results that beat analyst expectations.

Q1 revenue grew 23%y-o-y and 5% q-o-q to $304.9 million while net income was $18.4 million or $0.15 per share. Analysts expected earnings of $0.11 on revenue of $304.73 million. Q4 analysis is available here.

Subscription and support revenues were up 25% y-o-y and 6% q-o-q to $281.8 million. Professional services and other revenues were up 4% y-o-y and down 1% q-o-q to $23.1 million, added 3,900 customers in the quarter and 15,700 over the year. The total number of customers at the end of the quarter was 59,300.

Deferred revenue at the end of the quarter was $549 million, up 17% y-o-y but down 6% q-o-q. Cash from operations was up 17% y-o-y and 29% q-o-q to $98 million. It ended the quarter with no debt and total cash at $984 million, an increase of $101 million from Q4 and $233 million from the last year. says it is not clear when information technology spending patterns would return to normal levels. It has therefore reduced its full year revenue guidance of $1.3 to $1.33 billion by 4% to $1.25 to $1.27 billion. It is however undertaking strong cost control measures and increased earnings outlook from $0.54 to $0.55 to $0.59 to $0.60. Analysts expected revenue of $1.31 billion and EPS of $0.55.

For the second quarter, expects revenue between $312 and $313 million and EPS between $0.14 and $0.15.

It is currently trading around $40 with market cap of about $5 billion. It hit a 52-week high of $45 on May 5. In my last post, I had said that is likely to go on an acquisition spree, rolling up smaller companies like Apptus and VerticalResponse, which are built on the platform. Other SaaS companies it may consider within the CRM space are Lucidera and InsideView.

As I have said in my earlier posts, I would not like to see an interesting SaaS company like being acquired by bigger companies like HP, SAP, Oracle, IBM, or even Microsoft. However, it is a possibility that cannot be ruled out. SAP recently announced that it has a budget of $7 billion for acquisitions, big enough for acquiring I have to say this, though, that and SAP have completely incompatible cultures.

Chart for (CRM)

On May 7, Taleo (NASDAQ: TLEO), the leading provider of on demand talent management solutions with annual revenue of $168.4 million reported its first quarter results. Q1 revenue grew 34% to $48.1 million driven by 37% growth in application revenue to $41.2 million. It generated $13.4 million in cash flow from operations. Net loss was $2.2 million or $0.07 per share, compared to net income of $0.6 million $0.02 per share last year. The loss was mainly due to $3.5 million amortization costs related to the Vurv acquisition, as well as increased costs related to its revenue review last quarter.

During the quarter, Taleo signed 166 new customers despite an increasingly volatile global economic climate. It added 19 new Taleo Enterprise Edition(TM) customers, compared to 27 in the last quarter. It also signed 147 new customers for Taleo Business Edition(TM), a recruiting solution targeted at small and medium sized businesses. My interview with its CEO Michael Gregoire is available here.

Taleo is currently trading around $18 with market cap of about $564 million. It hit a 52-week high of $19.29 on June 10. Taleo is a more likely acquisition for SAP, and would be generally easier to integrate.

Chart for Taleo Corp. (TLEO)

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