Concur, NetSuite As Acquisition Targets

Both SAP and Oracle have over the past few months stepped up their cloud strategy with acquisitions. Oracle recently announced its plans to acquire Taleo for $1.9 billion. Coming on the heels of SAP’s December acquisition of SuccessFactors for $3.4 billion, it creates huge expectations of further consolidation of the SaaS industry. Let’s take a closer look at two likely candidates: Concur and NetSuite.

According to Gartner, the proportion of enterprise resource planning (ERP) revenue attributed to SaaS overall is still in the single digits, at approximately 7% of the overall ERP market. ERP SaaS offerings contributed approximately $1.5 billion to the SaaS market in 2010, and for year-end 2011, Gartner expects this to increase to $1.7 billion.

NetSuite, a provider of cloud-based financial or ERP suites with annual revenue of $236.3 million and market cap of about $3.2 billion, is a likely acquisition target for Oracle. Oracle CEO Larry Ellison is a majority shareholder in NetSuite, and Oracle can increase its market share in ERP by acquiring it.

NetSuite (NYSE:N) recently reported fourth quarter revenue of $64.1 million, up 23% y-o-y. Subscription and support revenue for the quarter was $54.2 million, representing 23% growth over the same period in the prior year. Net loss was $7.6 million, or $0.11 per share, compared to a net loss of $6.4 million or $0.10 per share last year. Non-GAAP net income was $3.4 million, or $0.05 per share, compared to non-GAAP net income of $2.8 million, or $0.04 per share, last year. NetSuite is trading around $49.47 with a market cap of about $3.4 billion with a 52-week range of $25.32 to $50. It hit a 52-week high of $50 on February 24.

Concur is a SaaS vendor in the niche area of expense management with annual revenue of $349.5 million and market cap of about $3.3 billion. According to TechNavio, the global SaaS expense management market is expected to reach $1.33 billion in 2014. In my recent post on SAP, I said Concur could be an interesting and relevant acquisition that would fit nicely in SAP’s portfolio. Further, Concur recently collaborated with Salesforce.com to deliver Concurforce built on Force.com. Conceivably, Concur could also go to Salesforce.com.

Concur (NASDAQ:CNQR) recently reported first quarter revenue of $100.4 million, up 25% y-o-y and 5% q-o-q. GAAP net loss was $0.9 million, or $0.02 per share compared to net income of $3.7 million, or $0.07 per share last year. Non-GAAP pretax income was $17.9 million, or $0.37 per share compared to $16.1 million, or $0.30 per share, for the year-ago quarter. Analysts expected earnings of $0.24 on sales of $94.7 million.

Gross margin was 73%. Cash and investments, net of customer funding liabilities and debt, increased approximately $22.7 million q-o-q. Concur repurchased shares for about $1.8 million during the quarter.

For the second quarter of fiscal 2012, Concur expects non-GAAP pre-tax income per share to be $0.28 and expects revenue to grow approximately 25% y-o-y. Concur raised expectations for fiscal 2012 revenue growth to 25.5% and non-GAAP pre-tax income per share of $1.27 from their earlier estimate of 25% revenue growth and non-GAAP pre-tax income per share of $1.25. The stock is trading around $60.05 with market cap of about $3.3 billion. It hit a 52-week high of $62.60 on February 2.