Software as a Service Stocks Fall 7% In January
First, the good news: Software as a service (SaaS) stocks performed better than the Dow Jones Industrial Average (down 8.84 percent) and the Standard & Poor’s 500 index (down 8.57 percent) in January 2009. Now the bad news: SaaS stocks still fell almost 7 percent during the month, according to our SaaS 20 Stock Index. Here’s a look at the biggest monthly SaaS winners and losers, plus a SaaS market forecast from IDC.
For January, the biggest SaaS 20 Stock Index winners were:
- SucccessFactors Inc. (SFSF, up 17.25%): The company, which specializes in “on demand talent management,” continues to position itself as “one of the fastest growing public software companies and the leading provider of on-demand employee performance and talent management solutions.” Shares climbed without much news from the company in January. Watch for an official earnings announcement on February 9.
- Constant Contact (CTCT, up 15.25%): The company started 2009 with more than 250,000 email marketing customers, and apparently benefitted from a financial analyst briefing in New York in early January. Quarterly financial results will be announced on Feb. 12.
- Amazon.com (AMZN, up 14.70%): Even as the DOW dropped Amazon impressed investors with strong quarterly earnings. In its earnings release Amazon evangelized its growing Amazon Web Services (AWS), Amazon Elastic Compute Cloud (EC2) and Amazon Simple Storage Service (S3).
- Google (GOOG, up 10.04%): The search giant delivered strong quarterly results amid the recession. And in the channel, the company launched its Google Apps Reseller program for solutions providers.
And the biggest SaaS 20 Stock Index monthly losers were:
- Websense Inc. (WBSN, down 25.18%): The security company’s financial forecasst for 2009 disappointed investors. However, Websense reiterated its commitment to the channel and announced its top 20 partners in North America.
- Concur Tech Inc. (CNQR, down 24.77%): The company, which specializes in on-demand “employee spend management” services, had a strong Q4 but now investors are worried about Q1 results.
- RightNow (RNOW, down 24.45%): No news was bad news for this SaaS-focused CRM provider. Fourth quarter results are coming February 4, but RightNow’s silence in January apparently left investors feeling bearish.
- Salary.com (SLRY, down 19.18%): Yet another provider of on-demand “talent management solutions,” Salary.com had a quiet January and investors await earnings on Feb. 5. Compay watchers are wondering if Salary.com’s takeover of Genesys will provide some upside…
Glass Half Full?
Meanwhile, International Data Corp. remains upbeat about the SaaS market. The research firm on January 26 released a research statement predicting that the SaaS industry will grow 40.5 percent in 2009 vs. 2008, up from an earlier forecast of 36 percent.
According to the IDC press release:
- By the end of 2009, 76% of U.S. organizations will use at least one SaaS-delivered application for business use.
- The percentage of U.S. firms which plan to spend at least 25% of their IT budgets on SaaS applications will increase from 23% in 2008 to nearly 45% in 2010.
- This market’s growth prospects will accelerate the shift to SaaS for the whole value chain as the promise of a recurring revenue stream, and the opportunity to tap OPEX and project-related dollars, will benefit the whole SaaS ecosystem.
- While demand for SaaS is strongest in North America, new contracts from customers in Europe, Middle East, Africa (EMEA) and Asia/Pacific (excluding Japan) also look particularly positive, and IDC expects that by year-end 2009, nearly 35% of worldwide revenue will be earned outside of the U.S.
- On the downside, IDC interviews with SaaS providers highlighted several issues, such as cash-flow shortfalls related to slow-paying current clients, liquidity challenges stemming from tight credit at lenders, and — on the horizon — limited resources to scale up with expanded infrastructure to support new customers and new service offerings.
I’m upbeat on SaaS over the long haul, but I think IDC’s forecast is way too optimistic. I suspect start-up businesses will move most aggressively to SaaS since they have no legacy infrastructure and can get operations running quickly using hosted services.
Regardless, Wall Street certainly didn’t shown much love to the SaaS industry during January.