Acquisition Spree Continues In Talent SaaS

In February of last quarter, SuccessFactors (NASDAQ:SFSF) made its first acquisition move by buying Inform Business Impact, a SaaS vendor in HR, talent analytics, and workforce planning, for about $40.5 million. With its first acquisition not yet closed, SucessFactors is continuing its spree with the recent purchase of CubeTree, a social enterprise platform, for about $50 million. Let’s take a closer look.

With this acquisition, SuccessFactors will be able to hook onto the trend of combining social networking with talent management services. The popularity of Facebook and Twitter among business professionals is ushering in the trend of integrating social networking with business applications. Recently, Salesforce.com launched its social networking prodct, Chatter, and RightNow acquired social networking company HiveLive for $5.9 million.

SuccessFactors recently reported its first quarter results. Revenue grew 24% y-o-y and 4% q-o-q to $43.8 million, and net loss per share was $4.7 million, or $0.06 per share, versus net loss of $5.7 million, or $0.10 per share, last year.

During the quarter, SuccessFactors signed a cloud computing software contract to expand from 300,000 deployed seats to a record 2.1 million. Analysts belive the customer to be Walmart. SuccessFactors generated $13.1 million cash in the quarter, up about five times from $2.7 million last year, and ended the quarter with $102.6 million in cash. Q4 coverage is available here.

SuccessFactors also raised its guidance for the fiscal year. It now expects full-year 2010 revenue of $180 million to $182 million, up from earlier guidance of $178 million to $180 million. For the second quarter, it expects revenue $45 million to $45.5 million and expects to break even. Analysts expect the company to break even with revenue of $44.6 million.

SuccessFactors hasn’t yet turned profitable and has already made two acquisitions. On the other hand, competitor Taleo (NASDAQ:TLEO) turned profitable in 2008 and also made two acquisitions: WorldWide Compensation for $16 million in September of last year and Vurv in 2008 for $128.8 million, just when it achieved profitability. SuccessFactors is currently trading around $20 with market cap of about $1.5 billion. It hit a 52-week high of $20.53 on March 11. Taleo is trading around $24 with market cap of about $931.5 million and hit a 52-week high of $27.93 on April 20.

If you compare the two companies, SuccessFactors spends more than 50% of its revenue on sales and marketing while Taleo spends just 27%. Taleo recently reported first quarter results that beat estimates. Revenue grew 14.5% to $55 million and net income was $0.8 million, or $0.02 per share, compared with a net loss of $2.1 million, or $0.07 per share, last year.

Taleo signed 260 new customers in the quarter and closed five large enterprise deals with annual contract values greater than $250,000. Q4 coverage is available here.

At the end of last year, both SuccessFactors and Taleo were building their cash reserves. Taleo raised $145 million in a secondary offering in November, and SuccessFactors raised some $215 million in its secondary offering.

Both companies are executing well in compelling markets, as evidenced by their stock prices. My expectation is that both will continue to do well in 2010 and beyond. The acquisition spree is also likely to continue.