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More Strong Performance From SaaS Market Leaders

Posted on Monday, Aug 24th 2009

In an earlier post this month, we observed that Salesforce.com, pioneer in the SaaS sector with annual revenue of $1.077 billion, has a 10.6% share in the CRM market, and SaaS accounts for 20% in the CRM market. Salesforce.com reported a strong second quarter last week. Also last week, the CEO of Taleo, Michael Gregoire, rang the opening bell of NASDAQ to mark a decade in the talent management industry. My interview with him, conducted last year, is available here. Let’s take a closer look at Salesforce.com as well as the SaaS talent management sector.

On August 20, Salesforce.com (NYSE:CRM) reported Q2 revenue of $316 Million, up 20% y-o-y. Profit more than doubled to $21.2 million or $0.17 per share from $10 million or $0.08 per share last year. Analysts expected earnings of $0.15 per share on revenue of $312.7 million. Q1 analysis is available here.

Gross margin improved to 80% from 79.4%. Salesforece.com added 46 people in key areas and the headcount is now 3,650. Deferred revenue grew 14% to $549 million. Cash from operations was down 14% to $45.9 million and it ended the quarter with cash of $1.03 billion, up by $207 million from last year.

International revenue accounted for approximately 28% of revenue. Revenue from America was up 20% to $226.0 million, Europe grew 13% to $56.0 million and Asia grew 35% to $34.0 million.

Subscription and support revenues increased 22% to $293.4 million while Professional services and other revenues were down 3% to $22.6 million. Salesforce.com added another 3,900 customers this quarter to take its customer count to 63,200, up 32% over last year. However, its attrition rate increased to the high teens due to economic weakness.

A major win this quarter was Marsh, a leading insurance broker and risk management company, which selected Salesforce.com over Oracle and Microsoft. Further, SuccessFactors, along with Motorola and many other customers, dropped the Oracle On Demand application and has come back to Saleforce.com. These are signs that Oracle needs to revisit its On Demand portfolio, perhaps with some SaaS acquisitions if it wants to achieve its goal to be the number one on-premise application company and the number one on-demand application company.

For the third quarter, Salesforce.com expects revenue in the range of $323 million to $324 million and EPS in the range of $0.15 to $0.16. The company raised its full-year guidance: it now expects revenue in the range of $1.27 billion to $1.28 billion and EPS in the range of $0.60 to $0.61. The stock is currently trading around $52 with market cap of about $6.5 billion and seems to be climbing back to its 52-week high of $58 on September 11 of last year.

Chart for Salesforce.com (CRM)

I earlier said that Salesforce.com should roll up smaller players such as Apptus, VerticalResponse, Lucidera and InsideView. Another acquisition target could be eCRM company Convio, with annual revenue of $57 million, which provides CRM solutions built on the Force.com platform.

Moving on to the talent management sector, on July 30, Taleo (NASDAQ:TLEO), a provider of on-demand talent management solutions with annual revenue of $168.4 million, reported second quarter results. Q2 revenue was up 30% to $49.2 million. Net income was $234,000, or $0.01 per share. Non-GAAP net income was $5.6 million, or $0.17 per share versus analyst estimates of profit of $0.16 per share on revenue of $49.20 million. Q1 coverage is available here.

During the quarter, Taleo signed 146 new customers, including 12 new enterprise customers and 134 new Business Edition or SMB customers. Its Business Edition application targeted at the SMB segment now has more than 3,400 customers. It closed eight large enterprise deals worth more than $250,000 annually, including one international deal worth over $1 million annually. The company ended the quarter with $61,969 in cash.

Early this month, Executive Vice President and Chief Financial Officer Katy Murray sold more than $1.2 million in Taleo stock and exercised approximately $652,000 in options, and Director Michael Tierney sold approximately $444,000 in company shares.

The stock is currently trading around $18 with market cap of about $580 million. It hit a 52-week high of $19.35 on June 19 and last week was upgraded from Neutral to Buy by Janney Montgomery.

Chart for Taleo Corp. (TLEO)

On July 27, SuccessFactors, Inc. (NASDAQ:SFSF), an on-demand performance and talent management solutions provider with annual revenue of $111.9 million, reported a strong second quarter in which it broke even on a non-GAAP basis.

Q2 revenue was up 44% y-o-y and 5% q-o-q to $36.9 million. Net loss narrowed to $2.32 million or $0.04 per share compared to loss of $19.29 million or $0.37 per share last year. Non-GAAP net income was $42,000 or $0.00 per share versus analyst estimates of a loss of $0.06 per share on revenue of $35.69 million.

Gross margin improved to 79% from 77% last quarter and from 53% at IPO . This is mainly due to strong execution led by CEO, Lars Dalgaard, whom I interviewed last year. The company generated about $939,000 of cash from operating activities and ended the quarter with $107.8 million in cash. Total spending in Q2 was $36.9 million, down 4% sequentially and 15% y-o-y as it continued to restrict costs. It ended Q2 with headcount of 618 and is hiring selectively.

During the quarter, SuccessFactors closed six deals over $500,000, up from three in Q1, and achieved higher renewal rates. It signed the world’s largest enterprise cloud deployment with Siemens AG for 420,000 users. It now has four customers with greater than 100,000 users, 12 customers with greater than 50,000 users, more than 35 customers with greater than 25,000 users, and more than 115 customers with greater than 10,000 users. It recently launched SuccessFactors Express, an automated performance management solution for companies with less than 50 employees.

For the third quarter, SuccessFactors expects revenue in the range of $37.2 million to $37.5 million. Non-GAAP EPS is expected to be breakeven, versus analyst estimate of $0.05 per share on revenue of $36.69 million.

It also raised its guidance for full fiscal 2009 revenue from 30% annual growth to 32% growth or $147 to $148 million. Non-GAAP loss per share is expected in the range of ($0.06) to ($0.07); previous guidance had been in the range of ($0.18) to ($0.22). The stock is currently trading around $12 with market cap of about $660 million. It hit a 52-week high of $15 on September 19 of last year.

Chart for SuccessFactors, Inc. (SFSF)

In my most recent post on this sector, I suggested that SuccessFactors (or Taleo for that matter) can acquire smaller companies like Salary.com (NASDAQ:SLRY), whose CEO I interviewed last year. Salary.com’s annual revenue in fiscal 2009 was $42.45 million and it has a market cap of about $45 million.

Early this month, the compny reported its first quarter results. Q1 revenue was up 18% to $11.4 million. Net loss was $5.1 million, or ($0.32) per share, compared to a net loss of $6.2 million, or ($0.39) per in Q109.

Salary.com ended the quarter with about 3,500 enterprise customers, up 20% y-o-y. Total deferred revenue was $29.3 million up from $28.3 million last quarter. Bookings were up 14% q-o-q to $12.4 million.

During the first quarter, Salary.com repurchased shares for about $1.5 million. It ended the quarter with $17.0 million in cash, down from $21.1 million last quarter.

For the second quarter of fiscal 2010, Salary.com expects total revenue in the range of $11.4 million to $11.9 million. It also raised its guidance for fiscal 2010. It now expects revenue in the range of $46.5 to $50.5 million and net loss in the range of $19.3 million to $23.3 million. The stock is currently trading around $3 after hitting a 52-week low of $1.28 on March 3.

Chart for Salary.com, Inc. (SLRY)

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