SaaS Companies Trading Near 52-week Highs

According to a recent Gartner report, the software as a service (SaaS) market is forecast to grow 22% to $8 billion in 2009. It is expected to show consistent growth through 2013 when worldwide SaaS revenue will total $16 billion for the enterprise application markets. SaaS companies Concur, RightNow and NetSuite are latching onto these trends and are trading near 52-week highs. Each of them has tremendous growth ahead as enterprises and SMB makes the transition en masse from licensed, on-premise, hard-to-manage software to the cloud model. Let’s take a closer look.

On August 5, Concur (NASDAQ:CNQR), a leading expense management software maker with annual revenue of $215.5 million, reported a strong third quarter driven by growth in subscription revenue. It recently also announced its acquisition of Etap-On-Line, which expands its presence in the European market. Its strong results come against the backdrop of unemployment that has nearly doubled in the past nine months and corporate travel spend that is down 135%.

Q3 revenue was up 13% to $62.2 million driven 14% increase in subscription revenue. Net income was $7.2 million or $0.14 per share compared to 4.5 million, or $0.09 per share last year. Non-GAAP EPS was $0.32 per share. Analysts expected earnings of $0.17 per share on revenue of $62.4 million. Q2 analysis is available here.

Free cash flow in the quarter was $14.3 million and Concur ended the quarter with total cash of $216 million. Concur signed more than 700 new customer contracts in the quarter, and more than 10% of new business signed came due to its American Express partnership.

Its Global Concur Connect Network connects more than 9,000 customers who spent more than $35 billion annually on content and electronic receipts from hundreds of suppliers. Concur aims to grow its base of customers to more than 20,000 customers by 2012. In its Q2 earnings call, Concur CEO Steve Singh said that the company has about 75% of the expense management market. My interview with him is available here. 
 
For the fiscal year 2009, Concur expects EPS to be $0.49. It expects cash flows from operations in 2009 to be between $64 million and $66 million. It is currently trading around $37 with market cap of about $1.8 billion. The stock hit a 52-week high of $36.32 on July 23.

On July 29, RightNow Technologies (NASDAQ:RNOW), a SaaS CRM vendor with an annual revenue of $140.4 million, reported a strong second quarter as it closed a record ten deals worth over one million dollars. Read my interview with CEO Greg Gianforte available here.

Q2 revenue was $36.3 million, compared to $35.2 million last year. Net income was $36,000, or $0.00 per share, compared to a net loss of $3.1 million, or $0.09 per share last year. Non-GAAP profit was $2.8 million, or $0.09 per share compared to analyst estimates of $0.04 per share on revenue of $36.08 million. Q1 analysis is available here.

Recurring revenue was up 7.5% to $27.4 million. Bookings for the quarter were $48.7 million. Gross margin improved to 70% over 67% in Q1 and 64% last year. Headcount was 756, up 2% from Q1 and down 1% from Q208. RightNow generated cash from operations of $2.1 million and ended the quarter with total cash of $47 million.

Professional services revenue was $9 million down $1 million from Q1. The mix of revenue across geographies was 72% from the Americas, 19% ifrom EMEA, and 9% from Asia-Pacific.

In Q2, RightNow signed 46 new customers and the average first year contract value was approximately $100,000, which is up from last quarter and Q408. It had ten deals of over $1 million, 60 deals between $100,000 and $1 million, and 421 deals of less than $100,000.

According to Gartner, worldwide CRM market revenue grew 12.5% in 2008 to $9.15 billion driven by enterprise investments in technologies that focused on customer retention, analytics and on-demand solutions. SaaS accounted for nearly 20% of CRM revenue and Salesforce had a share of about 10.6%.

Based on its performance, RightNow expects third quarter revenue in the range of $37 million to $38 million and EPS in the range of $0.00 to $0.02. Non-GAAP EPS is expected to be in the range of $0.06 to $0.08. Analysts expect the company to report earnings of $0.05 per share on revenue of $37.70 million.

For the full year 2009, revenue is expected to be in the range of $147 to $151 million. RightNow raised its EPS outlook to a range of $0.06 to $0.10 compared to previous guidance of $0.02 to $0.03. Non-GAAP EPS for 2009 is expected to be in the range of $0.29 to $0.33 compared to previous guidance of $0.20 to $0.25. Analysts expect the company to report earnings of $0.24 per share on revenue of $148.69 million. The stock is currently trading around $13 with market cap of about $410 million. It hit a 52-week high of $17 on August 15 of last year.

On July 31, NetSuite (NYSE:N) a leading SaaS vendor of business management software with annual revenue of $152.5 million, reported its second-quarter results. Last month, it announced plans to acquire QuickArrow, a professional services automation vendor, for $20 million. This acquisition adds to its OpenAir acquisition in the same space last year. Both these acquisitions combined give NetSuite 80,000 users and a leading market position.

NetSuite also announced that it is the fastest-growing financial management system vendor in North America among the top 10 vendors, according to a Gartner Dataquest report. According to the Market Share: ERP Software, North America, 2008 report, the ERP market in 2008 grew 3.4% while NetSuite grew 41.1% as it was the only pure SaaS vendor in the top 10 vendors.

As for the company’s financials, Q2 revenue grew 10% to $40.3 million but was down sequentially due to the reduction in revenue from its Japanese distribution rights agreement signed in 2006. Net loss widened to $5.0 million, or $0.08 per share compared to loss of $3.1 million, or $0.05 per share last year. Non-GAAP net income was $687,000, or $0.01 per share versus analyst estimates of $0.0 per share on revenue of $40.4 million.

Recurring revenue grew 20%. Long-term deferred revenue declined further to $5.6 million from $6.2 million in Q1 due to its shift from multi-year to one-year standard contracts. NetSuite added 217 customers in the quarter, up from 214 last quarter, but churn rates increased due to the impact of the economic slowdown on its customers.

ASPs increased 33% to $34,000 as a result of NetSuite’s strategy to attract larger customers. Its OneWorld product had an ASP of approximately $100,000 and its sales accounted for 31% of new business bookings in Q2.

NetSuite generated operating cash flow of $1.4 million, an improvement of $3.6 million over the previous quarter. It ended the quarter with $116.4 million in cash. Headcount was down to 962 from 967 in the recent quarter. Non-GAAP gross margin was 69.4%, down from 71.2% last quarter. For the rest of 2009, the company expects non-GAAP gross margin to be approximately 69% to 70%.

For Q3, Netsuite expects revenue of $41.4 million and non-GAAP net loss ranging from  $250,000 to a non-GAAP net profit of $250,000. Non-GAAP EPS is expected to be about $0.00 compared to analyst estimates of $0.01 per share.

For 2009, NetSuite has updated its revenue outlook to a range of $164 million to $168 million. It reiterated its 2009 outlook for non-GAAP EPS of $0.04 to $0.06. It is trading around $13.5 with market cap of about $830 million. It hit a 52-week high of $13.97 on April 29.