Incumbents And Innovators In SaaS

Yesterday we looked at the performances and acquisition prospects of SaaS players NetSuite, SuccessFactors, and Citrix. Let’s now take a closer look at their peers Omniture, Concur, and RightNow.

On April 23, Omniture Inc (NASDAQ:OMTR), a leading provider of online business optimization software with annual revenue of $296 million, reported a mixed first quarter. Q1 revenue grew 38% to $87.2 million (last quarter’s growth was 94%), beating analyst estimates of $86.85 million. Net loss narrowed to $8.2 million or $0.11 per share, compared to a net loss of $12.9 million or $0.19 per diluted share in Q108. Non-GAAP net income was $7.8 million or $0.10 per share, missing analyst estimates of $0.12 per share.

During the first quarter of 2009, Omniture added over 200 new customers versus 250 last quarter and last year, with the total now at about 5,200. Retention rates were essentially stable at 93% for platform customers and 98% for enterprise business. Deferred revenue increased to $117 million, up $5 million from the fourth quarter.

Total cash and investments at the end of the quarter totaled $125 million, up from $95 million at the end of 2008. The increase is a result of WPP’s $25 million equity investment in January 2009 and positive operating cash generation. Headcount is up slightly from the end of 2008 to 1,200 employees.

For Q2, Omniture expects revenue in the range of $87.6 to $88.6 million and net loss in the range of $0.10 to $0.09 per share. Non-GAAP net income is expected between $0.11 and $0.12 per share. Analysts expect earnings of $0.13 per share on revenue $89.18 million. The stock is currently trading around $11 with market cap of about $800 million.

Omniture operates in a field – web analytics – that despite almost 15 years of effort, remains quite inaccurate and archaic. The architectures are old, and data is often not visible in real time. However, given how critical the web is to business these days, web analytics is incredibly important.

In the next decade, I expect to see serious innovation in this area, and to keep itself current, Omniture has no choice but to acquire the innovators. Of course, Omniture itself could also get acquired in the process by one of the larger players, IBM or HP, most likely. Meanwhile, one of the coolest companies to innovate in the domain of analytics and optimization is a startup called Enquisite. [Full disclosure: Enquisite is my client] They will be launching next week, and the CEO is Mark Hoffman, a legendary entrepreneur, whose story I have just started publishing in the Entrepreneur Journeys series.

On April 29, Concur (NASDAQ:CNQR), the expense management software maker with annual revenue of $215.5 million, reported a strong second quarter. Q2 revenue grew 16% y-o-y and 6% q-o-q to $62.0 million despite a 30% decline in corporate travel. Net income was $6.7 million, or $0.13 per share, up 82% from $3.7 million, or $0.08 per share last year. Adjusted EPS was $0.28 per share, beating analyst estimates of $0.15 on revenue of $61.88 million. Q1 analysis is available here.

Cash flow from operations was $23.7 million, up 33%. Concur ended the quarter with total cash of $222 million, up $12 million sequentially. About 5% of new business signed came as a result of Concur’s partnership with American Express. It represents a huge opportunity in the SME space, and Concur expects that this partnership can drive about 10 to 20% of new business signed in the fiscal year.

Concur has about 75% of the expense reporting and reimbursement market, and it recently launched a new service called Concur Mobile. This service allows business travelers to use their smartphones to change itineraries, book hotels or car rentals, make dining reservations, and capture expenses.

Although SaaS companies follow a business model that saves on operating costs, Concur is one company that is badly affected by the economy as travel budgets declined and US unemployment rose to 8.5%, the highest level since 1975. Unemployment is expected to rise to 10.5% by mid 2010. Other negative factors include rising customer attrition, the strengthening of the dollar, and the outbreak of the H1N1 (swine flu) virus. The fact that Concur posted double-digit growth and profit even in such conditions is commendable. Read the full story of the company in my interview with CEO Steve Singh.

Concur expects EPS of $0.10 for Q3 and $0.48 for the full year. It is currently trading around $27 with market cap of about 1.3 billion. It hit a 52-week low of $17.82 on March 20, but has recovered nicely.

Within Concur’s domain, the most innovative company I have seen thus far is Rearden Commerce. Their story is the next up in the Entrepreneur Journeys series, after Enquisite.

On April 29, RightNow Technologies (NASDAQ:RNOW), which has an annual revenue of $140.4 million, reported a mixed first quarter. Q1 revenue was up 10% to $36.0 million, slightly less than Street estimates of $36.5 million. Net income was $1.3 million or $0.04 per share, compared to a net loss of $3.4 million or $0.10 per share last year and net income of $692,000 or $0.02 per share last quarter. Adjusted EPS was $0.09 per share, beating the Street estimate of $0.03 per share.

Net deferred revenue was $96 million, up from $94 million a year ago but down from $104 million at the end of Q4. Recurring revenue was $26 million, down from $26.5 million in Q4 and $24.4 million in Q108, mainly due to foreign currency exchange rate declines and lower booking revenue. Gross margin was 67%, consistent with Q4 and a 400 basis point improvement over Q108. Headcount at the end of the quarter was 742, up 1% from 737 at the end of Q4, and up 3% from the first quarter of 2008.

RightNow ended the quarter with total cash and investments of $93 million. It used about $1.8 million to repurchase shares.

RightNow says its major competitor is not any other company but rather the weak economy. The average first-year contract value in the quarter has decreased to $74,000. The company had one deal worth more than $1 million, 59 deals between $100,000 and $1 million, and 443 deals of less than $100,000. It added 26 new customers in the quarter compared to 59 last quarter. Read how the company went from bootstrapping to over $100 million in revenue in my interview with CEO Greg Gianforte.

In the quarter, RightNow introduced High Security Hosting for the US Department of Defense and federal civilian agencies. It thus became the first CRM vendor to provide services to the federal government, beating even Salesforce.com.

For Q2, RightNow expects revenue of about $36 million and net loss per share  in the range of $0.04 to $0.02. Non-GAAP net income per share is expected to be in the range of $0.03 to $0.05 versus analyst estimates of $0.04 on revenue of $37.76 million.

For the full year 2009, revenue is expected in the range of $147 to $151 million compared to previous guidance of $150 to $155 million. Non-GAAP net income per share is expected to be in the range of $0.20 to $0.25 compared to previous guidance of $0.15 to $0.23. Analysts estimate earnings of $0.18 on revenue of $152.91 million.

The stock is currently trading around $8 with market cap of about $243 million.

For RightNow, the innovators to keep an eye on are Lucidera, InsideView, Genius, JigSaw, Xactly. The domain of CRM and sales automation have been prolific areas for SaaS innovation in recent years.

As I said in yesterday’s post, I would much rather see independent roll-ups happen within the SaaS domain, instead of all interesting companies find themselves in the arms of HP, IBM, Oracle or SAP.