Competition In Learning Management Heats Up

In my most recent post on the talent management sector, I said that talent management companies were increasingly leaning toward learning systems. Taleo (NASDAQ:TLEO) acquired Learn.com and another talent management vendor, SumTotal Systems, acquired Learn.com’s rival, GeoLearning. All these acquisitions in the learning space had left SuccessFactors (NASDAQ:SFSF) with no learning partner and forced the company to make its own acquisition in the space. Let’s take a closer look.

SuccessFactors last month announced plans to acquire Plateau, a learning management software company, for $290 million in stock and cash. Learning management systems (LMS) represent an $860 million market that is made up of more than 60 providers. Learn.com, GeoLearning, Saba, and Plateau are the leading companies in the space, and we named Saba and Plateau as possible acquisition targets for SuccessFactors in last quarter’s coverage.

According to Claire Schooley in a Forrester Research report titled The Four Pillars of Talent Management, published in 2010, there is a growing trend to provide end-to-end talent management solutions. Recruitment, LMS, performance, and compensation form the four pillars of talent management referenced in the title. With the latest acquisition of Plateau, SuccessFactors has filled the LMS gap in its portfolio.

In March 2011, SuccessFactors acquired Jambok, an on-demand social video mobile learning startup, for an undisclosed sum. While Plateau is an LMS, Jambok offers an innovative product for social learning and knowledge sharing. Let’s now look at the financials of SuccessFactors and its rival, Taleo.

SuccessFactors’ Financials
SuccessFactors recently reported first quarter non-GAAP revenue of $68 million, up 52% y-o-y and 10% q-o-q. On a GAAP basis, it swung to a profit of $2.7 million, or $0.03 per share, from a loss of $3.7 million, or $0.05 per share, last year. Non-GAAP EPS was $0.01 per share compared with $0.00 per share last year. Analysts expected breakeven earnings on revenue of $63 million.

Gross margin declined to 70.3% from 76.3%. SuccessFactors generated $10.4 million from operating activities, down from $13.1 million last year. Deferred revenue was $229.6 million, up 24% y-o-y.

For the second quarter, SuccessFactors expects to break even on non-GAAP revenues of $69 million to $70 million. For the full year, the company expects to break even on non-GAAP revenue of $275 million to $280 million. Last quarter, it forecast full-year revenues of $265 million to $275 million. SuccessFactors is trading around $33.45 with a market cap of about $2.64 billion. It hit a 52-week high of $40.44 on April 26 following the announcement of its results.

Taleo’s Financials
Taleo recently reported first quarter revenues of $71.5 million, up 30% y-o-y. Net loss was $2.2  million or $0.05 per share compared to net income of $0.818 million or $0.02 per share last year. Non-GAAP net income was $0.23 per share compared to $0.16 per share last year.

Gross margin declined to 66% from 67.7%. Subscription revenue for the first quarter was $58.4 million, an increase of 23% on a year-over-year basis. Professional services revenue for the first quarter was $13.1 million, an increase of 75% on a year-over-year basis. Deferred revenue grew 34% y-o-y to a record $105 million.

Taleo signed 240 new customers in the quarter and closed eight new large enterprise deals with first-year contract values in excess of $250,000. Cash generated from operations was $15.6 million, and the company ended the quarter with total cash of $145.8 million, a decrease of $90.9 million from the prior year. This total includes approximately $135.5 million in net outflow from Taleo’s acquisitions of Learn.com and Cytiva, a mid-market provider of on-demand recruiting software solutions.

Steven D. Jones on WSJ.com reports that Taleo CEO Mike Gregoire has not ruled out additional deals in 2011. He says:

“The purchase of Learn.com provided Taleo with a valuable education component to its HR suite and if similar valuable assets became available he would consider them.”

Competition in the learning space is heating up, and it appears there will be many more acquisitions on the horizon. Taleo is trading around $37.05 with a market cap of about $1.52 billion after hitting a 52-week high of $38.28 on May 12.