SaaS Earnings Update

by mike on October 11, 2008

Update : I’ve reposted some of my findings in the spreadsheet below. Let’s just say Google Finance isn’t the most reliable.

How are public SaaS companies faring in this economic environment?

Here are some stats that I put together based on Q2 ‘08 earnings data from ten SaaS companies, including SalesForce.com, DealerTrack, NetSuite, Taleo, Omniture, Vocus, Salary.com, Kenexa, Concur and Constant Contact:

  • Median Quarterly Revenue Growth : 6.5%
  • Median Yearly Revenue Growth : 39.4%
  • Median Gross Margin : 69.0%
  • Median Operating Margin : -0.9%

Year-over-year revenue growth was rather strong across these SaaS companies. Profitability is another story, but that’s a topic for a separate post. You can see some of the underlying data here.

Now, let’s take a closer look at three earnings announcements from last quarter:

salesforce.com

We can’t start a SaaS discussion without first looking at poster child Salesforce.com. Salesforce.com had a good second quarter with revenues of $263M, which was 49% year-over-year growth, and put the company at a $1B+ run rate (a SaaS first). The earnings translated to $53M in operating cash during the quarter, an increase of 53% year-over-year. No major changes on expenses. SG&A and R&D were at 64% and 9% of total revenue, respectively.

Salesforce.com added 4,100 net new customers bringing the total to 47,700. Not only did the customer numbers increase, but so did contract sizes. Of note, Dell signed the largest deal in company history, a three-year global contract. This is a bit surprising given the macro environment today, but increasingly larger customers are requesting these types of deals. Revenue diversification across customer size, geography, industry and services mix also continues to be a top priority for the company. International business now represents 28% of revenue, up from 24% a year ago. Overall, a rather rosy picture for the company in a tough economic period.

taleo

Taleo also had a good quarter overall. The company recorded revenues of $38.8M, representing 25% year-over-year growth. Software accounted for 80% of total revenue, 21% growth from a year ago. On the expense side, R&D and sales and marketing costs were flat. Sales and marketing came in at 30% of total revenue. Both R&D and G&A were approximately 19%.

The company added 25 new enterprise customers and 10 enterprise deals with a first-year pricing greater than $250K. Taleo also continued to focus on expanding its international customer base. International revenue came in at 13% of total revenue, representing year-over-year growth of 83%. Last, the company completed a major acquisition of Florida-based Vurv, a direct competitor. The acquisition was partially funded with approximately $44M in cash relating to the proceeds and repayment of $9M in debt.

netsuite

NetSuite posted solid top-line results for the second quarter. The company’s revenue grew 43% year-over-year to $36.6M. Non-GAAP net loss for the second quarter was $900K, a 34% improvement year-over-year. Cash flow from operations for Q2 was negative $1.8M as compared to positive $1.5M from the previous quarter. This was primarily due to tax liabilities as a result of the OpenAir acquisition. For expenses, product development was 10.6% of total revenue, an increase of 8% mainly due to the additional headcount from the OpenAir acquisition. Sales and marketing was 51%, an increase of also 8% over Q1 as the company is hiring salespeople aggressively along with increasing marketing spend. G&A was 12.6% of revenue for the quarter.

NetSuite has done a good job increasing the average selling price per customer. In Q2, NetSuite added more than 400 new customers with an average annual contract value for new sales at $30K, up from $20K a year ago. International business also increased to 20% of total revenue for the quarter.

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