SaaS Cloud Software Update – November 2017

Navidar | December 22, 2017

Public Markets and M&A Activity 

The Navidar SaaS Software Cloud Index was flat in November but is up 30% in 2017 through the end of the month, compared with the NASDAQ’s +2% and +28%, respectively. Following is a summary of the company-specific issues related to selected stocks in our coverage universe that meaningfully out- or under-performed as well as relevant M&A activity.

Cisco Systems (NASDAQ:CSCO +9.2%) – The hardware and software conglomerate reported strong fiscal 1Q18 results. While the top line fell 2% YOY in the quarter; recurring revenue grew to a greater mix of the total, up three points to 32%. Also, the applications ($1.2B, up 6%) and security ($585M, up 8%) business units posted positive growth, but were more than offset by infrastructure platforms’ decline ($6.97B, down 4%). BroadSoft, which Cisco is acquiring for $1.9B, reported above-plan results too. It will help grow the application business and return overall revenue growth to positive soon. We expect CSCO to continue buying software businesses.

Yext (NYSE:YEXT +24.7%) – The Internet knowledge listing provider reported strong 3Q17 results. Revenue of $44.3M grew 39.0% YOY and loss per share of -$0.12 both exceeded expectations. YEXT added 55 new enterprise clients and has 1.4M licenses under management, encompassing locations and people (e.g., financial advisors and doctors). The only negative in the quarter is that YP’s merger with Dex Media will reduce revenue growth by about one percentage point.

Callidus (NASDAQ:CALD +15.5%) – The lead-to-money SaaS provider beat and raised expectations in 3Q17, driven by success of its multi-product strategy. Multi-product deals continue to represent about 50% of new business. SaaS revenue of $50.7M grew 31% YOY and total revenue of $64.2M advanced 22.3% YOY. CALD also introduced 2018 SaaS revenue growth guidance at a healthy 25-28% pace.

Bazaarvoice (NASDAQ:BV +13.0%) – The online product rating-and-review provider is being acquired by Marlin Equity Partners for $521M, a 14.5% premium to its pre-announcement value. Management has successfully led BV’s recovery after the Department of Justice forced it to spinoff PowerReviews in 2014. Profit margins have since improved and BV launched or acquired multiple new products. Its flagship ratings-and-reviews platform is now complemented by higher growth offerings, such as advertising. Navidar represented FeedMagnet for its sale to Bazaarvoice in 2014.

Asure Software (NASDAQ:ASUR +27.3%) – The SaaS HR solutions provider reported better than expected 3Q17 revenue. Management reaffirmed plans to achieve double-digit organic revenue growth (currently at about 10%) with multiple tuck-in acquisitions of service bureaus that already license its HCM/Payroll software. Each bureau has about $2.0M of revenue and would be purchased for around a 2x multiple. ASUR expects to reach $70-80M of revenue in 2018, with $16-20M of non-GAAP EBITDA.

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