The global recession, which not surprisingly has forced companies to cut operating costs and streamline IT operations, has been something of a boon for the SaaS sector, with major companies turning to cloud computing. I expect to see acquisitions in the SaaS space this year. SaaS companies like NetSuite, SuccessFactors, and Citrix, which all recently reported solid quarters, are likely targets. Let’s take a closer look.
On May 4, NetSuite Inc. (NYSE:N), a leading SaaS vendor of business management software with annual revenue of $152.5 million, reported a strong first quarter. Q1 revenue was up 22% to $41.6 million versus analyst estimates of $42 million. Net loss narrowed 16% to $3.7 million, or $0.06 per share. Non-GAAP EPS was $0.02 versus analyst estimates of $0.00.
Long-term deferred revenue continued to decline as a result of the shift away from multi-year to one-year contracts. It was $6.2 million, down from $7.2 million last quarter. Recurring revenue was up 29%. The company added 240 customers during the quarter, compared to 350 in the previous quarter, and churn rates were stable.
NetSuite improved its cash flow in the quarter by $3.1 million, one of its objectives for 2009. It ended the quarter with with $119.6 million in cash and cash equivalents. Headcount was 967, compared to 971 at the end of Q4. Non-GAAP gross margin for the first quarter was 71.2%, up from 71% last quarter. The company expects gross margins to remain stable at the 70% to 71% level.
For Q2, NetSuite expects revenue of $40 million and non-GAAP EPS ranging from a loss of $0.01 to $0.00, below the Street consensus estimates of $42.5 million and profit of $0.01 per share. For the full year, it expects revenue of $162 million to $168 million, well below the Street at $175.3 million. Non-GAAP EPS is expected between $0.04 and $0.06, in line with the Street’s $0.05. The stock is currently trading around $11 with a market cap of about $670 million. It hit a 52-week high of $13.97 on April 29.
NetSuite’s suitors will include Oracle, SAP, and possibly IBM & HP, if they decide to change their current infrastructure software oriented strategy to include applications, in which case, they’d need to look at SaaS.
On April 30, SuccessFactors, Inc. (NASDAQ:SFSF), the global leader in on-demand performance and talent management solutions with annual revenue of $111.9 million, reported a strong first quarter that beat estimates.
Q1 revenue grew 50% y-o-y and 7% q-o-q to $35.2 million. Net loss was $5.68 million or $0.10 per share versus a loss of $19.29 million or $0.37 per share last year. Non-GAAP net loss was $0.06 per share. Analysts expected loss of $0.10 per share on revenue of $34.24 million.
Gross margin was 77%, up from 71% last quarter and 53% when it went public six quarters ago. The company generated $2.7 million of cash from operating activities, a 286% sequential increase. Total cash, cash equivalents and marketable securities at the end of the quarter was $105.5 million.
SuccessFactors had net new customer additions of 120 versus 230 last quarter. It closed three deals greater than $500,000 towards the end of Q1.
As part of the restructuring announced last quarter, total headcount was reduced by 8% and is now 600. There have also been management changes. Former Yahoo! executive Dimitry Krakovsky is the new vice president of Product Management. Former eBay vice president of Architecture and Technology Strategy Tom Fisher is now vice president of Cloud Computing. Former SAP APAC senior vice president Murray Sergeant joined as the head of SuccessFactors’ Asia Pacific sales. In Asia Pacific, SuccessFactors grew its customer base more than 85% sequentially and now has more than 550 customers in the region. It is building facilities in China and India to cash in on the low-cost factor.
For Q2, SuccessFactors expects revenue to be in the range of $35.5 to $35.75 million and non-GAAP net loss to be in the range of 0.05 to $0.07. For the full year, the company reiterated its guidance of revenue of $145 to $146 million or 30% annual growth. It now expects non-GAAP net loss in the range of $0.18 to $0.22; previous guidance had been in the range of $0.23 to $0.27. Analysts expect revenue of $35.53 million for Q2 and loss of $0.26 for 2009. The stock is currently trading around $8 with market cap of about $463 million. It hit a 52-week high of $10.50 on May 1.
Oracle is rumored to have tried to acquire SuccessFactors earlier this year. I also feel that SuccessFactors would be an excellent company for one of the Indian outsourcing vendors to acquire and build a comprehensive SaaS-enabled BPO practice around. On the other hand, SuccessFactors, with its strong leadership, can also roll up other companies such as Salary.com, whose CEO I interviewed last year. I maintain my preference for some of the smaller SaaS companies rolling up, rather than their getting acquired by the giants.
On April 29, Citrix Systems, Inc. (NASDAQ:CTXS), the global leader in application delivery infrastructure with annual revenue of $1.58 billion, reported its first quarter results. Revenue was down 2% to $369 million due to declining product license sales. Net income declined 80% to $7 million, or $0.04 per share due to restructuring charges. Adjusted EPS was $0.32, beating analyst estimates of $0.31 on revenue of $359 million.
Deferred revenue was $535 million, up from $459 million last year. Cash flow from operations was $82 million and the company bought back shares for about $25 million. It announced an additional $300 million for share repurchases, bringing the current authorization to $350 million.
By region, revenue decreased in the Americas by 1%, in EMEA by 11% percent, and in the Pacific by 9%.
While product license revenue decreased 24%, revenue from license updates grew 11% and technical services revenue grew 8%. With the company’s increased focus on SaaS, online services revenue also grew 16% to $72 million, led by the collaboration products in the GoToMeeting family, which increased by 45%. Citrix recently announced enhancements to its Citrix Cloud Center (C3).
Application networking business revenue was up 20% to $45 million. In server and desktop virtualization, XenServer and XenDesktop revenue grew by over 150%.
For Q2, Citrix expects revenue to be flat to slightly down from $377 million in Q208. For the full year, it expects revenue to be flat compared to 2008. The stock is currently trading around $27 with a market cap of about $5 billion. In my most recent post and earlier posts, I said that Citrix could be an acquisition target for bigger companies such as Oracle, SAP, Microsoft and IBM. IBM, with its anti-Cisco strategy, could be a good fit, as would be HP.