Why Are SaaS Stocks Climbing Higher?

As I mentioned August 8, software as a service (SaaS) stocks have been moving higher lately. In fact, MSPmentor’s SaaS 20 Stock Index has climbed four consecutive weeks.

What’s behind the upward trend — empty Wall Street hype? Actually, no. In recent weeks, surprisingly strong earnings results have given our index members a boost. Last week’s biggest winners included Athenahealth Inc. (ATHN, +19.47 for the week ended Aug. 8), SuccessFactors Inc. (SFSF, +18.18%), Kenexa Corp. (KNXA, +16.31%), Concur Tech Inc. (CNQR, +16.17%), Taleo Corp. (TLEO, +13.18%) and Omniture Inc. (OMTR, +10.55%).

Here’s a closer look at each SaaS company and its recent momentum.

• During Athenahealth‘s most recent quarter, revenue jumped 35% to $33 million and net income was $2.8 million; the company had reported a $3.4 million loss in its corresponding quarter last year. Athenahealth specializes in SaaS-oriented medical billing software.
• SuccessFactors also posted strong quarterly results, with revenue jumping 71 percent and deferred revenue hitting $123.6 million, up 94% year over year, the company disclosed. SuccessFactors specializes in on-demand HR software.
• Kenexa, which focuses on workforce and talent-oriented systems, said its Q2 revenue jumped 25% to $56.4 million, and net income of $6.0 million exceeded Wall Street’s expectations.
• Concur Technologies on Aug. 7 announced plans to expand its stock repurchase program. The news came roughly a week after the company announced strong Q3 earnings and upped its 2008 financial view. Concur specializes in online travel and expense management systems.
• Taleo also benefited from strong quarterly results, and Omiture shares began to rebound amid all the positive SaaS news and a strong endorsement from Motley Fool.

Now, let’s look at the bigger picture. Since closing at 803.04 on July 11, our SaaS 20 Stock Index has risen 14.72% to 921.58. For its year-to-date, the index is still down 7.84% — but that’s far better than in July, when the index was down roughly 20% for the year.

I’m trying my best not to hype SaaS. I do believe more and more software will be delivered through SaaS business models. But it’s still early in the SaaS game, and market gyrations will surely continue.

Still, it’s good to see a number of SaaS-centric companies delivering strong results that reinforce the SaaS business model.