SaaS: Only Three Public Companies Are Consistently Profitable

Here's a stunning observation about the SaaS (software as a service) market: Only three publicly traded pure play SaaS companies generate sustained GAAP profits, according to Gartner Inc. Does that mean SaaS isn't living up to expectations?

That depends on your perspective. On the one hand, SaaS-centric companies continue to fetch lofty valuations on Wall Street. And SaaS revenues continue to grow quickly for many companies. But on the other hand, SaaS providers also face lofty marketing expenses and customer acquisition costs.

Plus, you have to keep Gartner's statement in perspective. The statement only looks at:

  • Publicly held SaaS companies -- leaving scores of privately held SaaS businesses out of the conversation.
  • Pure play SaaS companies -- leaving hundreds of hybrid companies (particularly Intuit, Microsoft, SAP, Oracle, etc.) out of the SaaS conversation.
As I look at our own SaaS 20 Stock Index, I see numerous companies that have generated profits in recent quarters -- but Gartner's statement focuses on sustained profits and pure SaaS players. Plus, I must concede: I'm not sure which three SaaS companies Gartner is indirectly praising. (Anyone care to guess?)

Still, it's one heck of a reality check from Gartner. Thanks to Ken Vanderweel over at Nimsoft for mentioning a series of Gartner stats to me -- including the SaaS stat. It's a real eye-opener.

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