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SaaS Talent Market Consolidates

Posted on Thursday, Feb 11th 2010

The SaaS talent management market is clearly going for market consolidation. Over the past year, there have been numerous acquisitions in the space, the most recent being the $15 million acquisition of Inform by SuccessFactors (NASDAQ:SFSF). Let’s take a closer look.

Inform Business Impact is a global leader in HR, talent analytics, and workforce planning. SuccessFactors has recently announced its BizX applications that repositions it as a business execution provider. The Inform acquisition should strengthen its BizX strategy. However, SuccessFactors hasn’t turned profitable yet, and analysts will also watch closely to see how the company handles its first acquisition. Read my interview with CEO Lars Dalgaard, in which he comes across as a strong leader.

SuccessFactors recently reported its fiscal year 2009 and fourth quarter results. Fiscal 2009 revenue grew 37% to $153.1 million and customers grew to over 3,000 while net loss was $0.21 per share. Q4 revenue grew 28% y-o-y and 9% q-o-q to $42.2 million and net loss per share was $0.04. The company generated $15.4 million cash in the year and ended the year with $220.9 million in cash, up 216%. Non-GAAP gross margin was 77%, compared to 71% a year ago. Q3 coverage is available here.

For the first quarter, SuccessFactors expects revenue in the range of $43.0 to $43.5 million and non-GAAP net income to be $0.0 per share. For 2010, it initiated guidance for revenue of $178 million to $180 million, or 17% growth, and to break even on a non-GAAP basis. The stock is currently trading around $16 with market cap of about $1 billion. It hit a 52-week high of $19.50 on January 11.

Chart for SuccessFactors, Inc. (SFSF)

While this is the first acquisition for SuccessFactors, Taleo (NASDAQ:TLEO) has already made two acquisitions: Vurv for $128.8 million and Worldwide Compensation for $16 million and established itself as the market leader in Talent SaaS with $198 million annual revenue and 4,400 customers. SuccessFactors is No.2, and at No.3 is the merger of Peopleclick and Authoria with combined revenue of $100 million and 2,000 customers. Last month, Bedford Funding, the private equity firm that owns Authoria, spent $100 million to acquire and merge the two companies.

Taleo reported a strong fourth quarter yesterday. Q4 revenue grew 5% to $50.5 million and net income was $4.6 million or $0.13 per share. For the full year, revenue increased 18% to $198.4 million and net income was $1.3 million or$0.04 per share. As the economy and job market recover, CEO Michael Gregoire expects a strong 2010. My earlier interview with him is available here. The company ended the year with $244 million in cash and is well-prepared for more acquisitions.

 The stock is currently trading around $20 with market cap of about $630 million. It hit a 52-week high of $25.21 on October 14.

Chart for Taleo Corp. (TLEO)

The talent market could undergo further consolidation, and strong acquisition prospects would be Salary.com (NASDAQ:SLRY) whose CEO I interviewed last year and Jobs2Web, which last year made it to Inc. Magazine’s list of 500 fastest-growing private companies. Salary.com is a provider of on-demand human resources software that helps businesses and individuals to manage pay and performance. Salary.com’s annual revenue in fiscal 2009 was $42.45 million with 3,500 enterprise customers, and it has a market cap of about $36 million. Founded in 2003, Jobs2Web provides interactive recruitment marketing solutions that automate recruitment marketing. Its annual revenue in 2008 was $3.4 million.

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