Concur’s Stock Gyrations and SaaS Investing

In this morning’s Trend Radar 2008: SaaS in the Enterprise, I said I will keep recommending SaaS stocks despite rumblings of a recession. Concur (Nasdaq: CNQR) is such a stock. It is a leading provider of on-demand Employee Spend Management services in the niche area of Travel.

In my first post on Concur, I looked at how its travel expense management services align with the Software-As-A-Service (SaaS) and Extended Enterprise (EE) trends of Enterprise 3.0. It integrates the workflow of travel bookings and expense management beyond the walls of the enterprise, and brings into its fold the vendors. My thesis on Enterprise 3.0 can be found here in which I define it as Enterprise 3.0 = (SaaS + EE). You can also read my interview with Steve Singh, Concur’s CEO in which I trace the Concur story in great detail.

I followed this interview up with a post on how Concur is well-positioned to sell its services to not only enterprise customers, but also Small Medium Enterprises (SME) customers, yet another Enterprise 3.0 trend. Its delivery model, pricing structure, and sales channel are well-aligned with SME purchase dynamics, giving it a great opportunity to penetrate the severely under-penetrated SME market.

2007 has been a year of tremendous growth for Concur. Total revenue in fiscal 2007 that ended September 30, 2007 was $129.1 million, up 33%. Net income was $8.2 million, or $0.20 per share, compared to $ 34.2 million, or $0.87 per share for fiscal 2006. For 2008, Concur expects revenue to be $200 million and pro forma EPS to be $0.70 per share. The stock is now trading around $31, after its 52-week high of $39.73 on December 24.

The thought of a recession is on most investor’s minds right now. It’s a good time to start thinking about a strategy to recession-proof your portfolio. There are analysts who think the SaaS stocks are too expensive, and in a recession year, they would not hold up. There is certainly historical evidence supporting this point of view. The fact that CNQR dropped by almost 22% since Christmas is direct evidence that fears of a recession will drive stock prices down.

So what do we do? Probably, look for buying opportunities at significantly lower prices, and then hold for the longer term.

Concur is a good company in a hot growth space. As far as fundamentals are concerned, I expect that they will deliver to or exceed Street expectations. Thus, the gyrations in the stock would be due to macro-economic factors, not because the company doesn’t perform. And don’t forget, one of the greatest advantages of SaaS stocks in visibility into the recurring revenue backlog.

In general, my sense is that now is the time to be patient, buy/hold on to good companies, and not panic.