Public SaaS Company Performance: Winners, Losers
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Public SaaS Company Performance: Winners, Losers

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  • In THINKstrategies conducted a worldwide survey via the web in conjunction with Cutter Consortium of 118 IT professionals to determine their level of interest and adoption of software as a service. We found…

Public SaaS Company Performance: Winners, Losers Public SaaS Company Performance: Winners, Losers Presentation Transcript

  • Public SaaS Company Performance: Winners, Losers & Lessons Learned
  • SAAS MARKET UPDATE – SUMMARY
    • SaaS stocks are up 71% YTD in 2009, but success has not been universal
      • Represents a 110% rebound from the lows of early March
      • Median multiples now stand at 3.9x 2009E revenue and 26.3x 2009E free cash flow
      • Biggest leaders have been from most maligned sectors: HR, CRM
      • Some of the best SaaS companies have been stock laggard
    • Focus areas for 2010
      • CRM, collaboration, compliance are hot sectors.
      • HR dropped in this survey.
      • Renewal rates remains strong
    • Investors are desperate for new ideas
      • Value bookings growth and consistency
      • Key metrics: LTV, CAC, Magic Number
      • More consolidation to come
      • Keep doing what you are doing…
  • SAAS STOCK PRICES SINCE JANUARY 2008 Notes: SaaS Index includes ATHN, CNQR, CTCT, TRAK, DMAN, KNXA, N, OMTR, RNOW, SLRY, CRM, SFSF, TLEO and VOCS (excludes LOGM). Source: Capital IQ as of 10/12/09. Market Data DJIA: -25% NASDAQ: -19% SaaS Index Equal Weights: -24 % Market Cap Weighted: -18%
  • SAAS MARKET VALUATIONS AND CHANGES YTD $8,500 % Change YTD (1) Mean: 71% Market Capitalization (US dollars in millions) Source: Capital IQ and Wall Street estimates as of 10/12/09. (1) Mean percent change year-to-date excludes LOGM; LOGM percent change reflects change since pricing on 6/30/09. Best Performers: TLEO, SFSF, OMTR, CRM, RNOW
  • SAAS 2009E REVENUE MULTIPLES Median: 3.9x (US dollars in millions) Enterprise Value / 2009E Revenue 2009E Median Revenue Multiple Trendline Source: Capital IQ and Wall Street estimates as of 10/12/09. SaaS: 3.9x Software Universe: 2.5x High Quality has stayed High Multiple
  • SAAS 2009E FCF MULTIPLES Median: 26.3x (US dollars in millions) Enterprise Value / 2009E FCF 2009E Median FCF Multiple Trendline Source: Capital IQ and Wall Street estimates as of 10/12/09. Note: FCF multiples greater than 60x are considered not material ("NM"). SaaS: 26.3x Also true for FCF multiples
  • SAAS 2010E REVENUE MULTIPLES Median: 3.5x (US dollars in millions) Enterprise Value / 2010E Revenue 2010E Median Revenue Multiple Trendline Source: Capital IQ and Wall Street estimates as of 10/12/09. SaaS: 3.5x Software Universe: 2.4x But, High Multiple does not mean High Performer
  • RECENT MARKET RALLY Notes: SaaS Index includes ATHN, CNQR, CTCT, TRAK, DMAN, KNXA, N, OMTR, RNOW, SLRY, CRM, SFSF, TLEO and VOCS (excludes LOGM). Source: Capital IQ as of 10/12/09. Market Data DJIA: +51% NASDAQ: +69% SaaS Index Equal Weights: +110 % Market Cap Weighted: +98% Best Performers: KNXA TLEO SFSF RNOW Worst Performers: DMAN ATHN VOCS CTCT
  • REVENUE MULTIPLES VERSUS GROWTH AND FCF MARGINS Enterprise Value / 2009E Revenue 2009E Revenue Growth Enterprise Value / 2009E Revenue 2009E FCF Margin Source: Capital IQ and Wall Street estimates as of 10/12/09.
  • FCF MULTIPLES VERSUS GROWTH AND FCF MARGINS Enterprise Value / 2009E FCF 2009E Revenue Growth Enterprise Value / 2009E FCF 2009E FCF Margin Source: Capital IQ and Wall Street estimates as of 10/12/09. Note: 2009E FCF multiples greater than 60x are not material.
  • SaaS Frequency of Quarterly Beats and Raises Source: Company reports and Wall Street estimates as of 10/12/09. Last Six Quarters Last Three Quarters
  • CONSISTENCY IS KEY TO STOCK SUCCESS
    • Human Resources – SFSF, TLEO, KNXA.
      • SaaS is replacing HR departments.
      • Job churn despite unemployment increases.
      • Multiples were relatively modest.
    • Customer Relationship Management – CRM, RNOW
      • Moving from SFA to Marketing
      • 58% of CIO’s plan to purchase SaaS CRM over next 12 month, 33% SFA
    • Investors reward consistency
      • Inherently better consistency in SaaS models
      • But, if you change strategy expect some pain (i.e. SLRY, RNOW, CNQR)
  • 2010 IT & SAAS BUDGETS WILL IMPROVE
    • IT budgets are actually increasing.
      • 56% expect increase 2009 IT budget, largely consistent thru 2009.
        • But, 24% expect < 2% increase.
      • 68% expect increase 2010 IT budget.
        • But, 29% expect <2% increase.
    • Biggest priorities are virtualization, CRM, business intelligence and security.
    • Biggest risks are services (both onshore and offshore), software applications, middleware/SOA, data center co-location.
    • SaaS at risk had appeared in 1H surveys
  • SAAS WELL POSITIONED
    • In surveys, satisfaction with SaaS remains high, despite moderating usage with economy.
      • 60% usage vs. 71% in 2008 and 25% in 2007.
      • Satisfaction is up again (49% vs. 40% vs. 23%).
    • SaaS continues to take market share.
      • Continues to increase as % of IT budgets (25% vs. 21% vs. 16% vs. 10%).
      • Renewal rates improved (93% vs 90%).
    • CRM, collaboration, compliance are hot sectors.
      • HR dropped in this survey.
  • SAAS AS % Of IT BUDGET - Q3 2009 Budget Projections 2010 Budget Projections Survey of 80 CIO’s, July 2009, Pacific Crest Securities, Inc.
  • SaaS As % Of IT BUDGET - Q1 2009 Budget Projections 2010 Budget Projections Survey of 74 CIO’s, March 2009, Pacific Crest Securities, Inc.
  • RENEWAL RATE UP TO 93% FROM 90% Q3 2009-93% Renewal Rate Q1 2009-93% Renewal Rate Q1 2008-90% Renewal Rate Survey of 80 CIO’s, July 2009, Pacific Crest Securities, Inc. Survey of 74 CIO’s, March 2009, Pacific Crest Securities, Inc. Survey of 109 CIO’s, March 2008, Pacific Crest Securities, Inc.
  • SAAS PRIORITIES FOR NEXT 12 MONTHS
    • Customer Relationship Mgmt – 58%
    • Collaboration – 43%
    • Compliance & Risk Mgmt – 39%
    • Industry Specific Applications – 38%
    • Procurement/Supply Chain – 38%
    • Enterprise Resource Planning – 36%
    • Web Analytics – 35%
    • Sales Force Automation – 33%
    • Real Time Dashboards – 28%
    • Human Resource Mgmt – 20%
    • E-Commerce – 15%
    Big Increase in CRM Big Drop in HR
  • PRIMARY SAAS BENEFITS
    • Faster Implementation Time – 55%
    • Access To Current Version – 55%
    • Lower Internal IT Costs – 54%
    • Lower TCO – 50%
    • System Reliability- 46%
    • Security – 41%
    • Integration With Existing Infrastructure – 39%
    • Ready Remote User Access – 38%
    • Reduced Hardware Requirements – 28%
    • Ability To Customize Applications – 24%
    Former Obstacles Are Now Assets
  • SAAS EFFICIENCY RATIOS Magic Number = Δ Revenue S&M costs CAC Ratio = Δ Gross Profit S&M costs LTV = MRR GP Churn – CAC
  • LTV ILLUSTRATION Breakeven in Month 12 $825 Net Customer Value 45 Month Customer Life (2.2% Churn) Cash Flow Stream of New Customer Months Net Customer Value = Churn (MRR GP) Constant Contact: $300 CAC; $35 MRR; 71% GM; 2.2% Churn – CAC = 2.2% $25 – 300
  • CAC RATIO ILLUSTRATION Company Profile: $20M Run-Rate; 36% Growth; 70% GM Q1 Q2 Δ Δ ARR $5.0 $5.4 $0.4 $1.6 3.5 3.8 0.3 1.2 Revenues Gross Profit Scenario 1 CAC Ratio = 1.0 Q1 S&M = $1.2M Q1 CF = +$0.5M 5-Year CF = +$25M Scenario 2 CAC Ratio = 0.5 Q1 S&M = $2.4M Q1 CF = -$0.6M 5-Year CF = -$26M
  • SAAS COMPANY MARGIN ANALYSIS ~$25M ~$50M ~$100M Median Run-Rate 72% 60% 23% 15% (26%) (13%) Gross Margin Sales & Marketing Research & Dev. EBIT Margin General & Admin. FCF Margin 68% 47% 19% 15% (17%) (4%) 70% 46% 12% 17% (1%) 5% Median includes ATHN, CNQR, CTCT, DMAN, KNXA, LOGM, N, OMTR, RNOW, SLRY, CRM, SFSF, TLEO and VOCS. ~$25M median excludes ATHN, CNQR and RNOW. ~$100M median excludes DMAN, LOGM, SLRY and VOCS.
  • INVESTORS DESPERATE FOR NEW IDEAS
    • Bookings growth and consistency are key
    • Companies are looking for growth
      • Consolidation from legacy software vendors
        • (ADBE/OMTR)
      • Consolidation within SaaS
        • (TLEO/Vurv, KNXA/Brass Ring)
      • Consolidation within industries
        • (AMEX investment in CNQR)
    • New revenue streams are starting to emerge
      • TLEO selling resumes
      • RealPage
    • So, keep doing what you are doing…
  • Public SaaS Company Performance: Winners, Losers & Lessons Learned