SaaS Cloud Software Update – October 2017

Public Markets and M&A Activity

The Navidar SaaS Software Cloud Index advanced 4.4% in October and 29.4% in 2017 through the end of the month, compared with the NASDAQ’s +3.6% and +25.0%, 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.

NICE (NASDAQ: NICE +2.5% in October) acquired Workflex – WorkFlex’s innovative and proprietary workforce engagement SaaS solution provides significant strategic benefits to multinational enterprise customers. It addresses two of the most burning challenges facing customer service organizations – creating high workforce engagement and lowering attrition, and responding in real-time to changing customer needs. Its intelligent automation technology maximizes scheduling flexibility, optimizes intraday performance, and reduces administrative overhead. Workflex is integrated with NICE’s market leading Adaptive WFO (workforce optimization) solution. Navidar represented Workflex as its sell-side M&A advisor for this transaction.

Ivalua acquired Directworks – Directworks developed a market leading direct materials sourcing SaaS solution that provides a better way for highly engineered product manufacturers to work collaboratively across teams and with suppliers to develop, launch, and deliver more profitable products. Directworks will be folded into Ivalua’s leading global Spend Management solution. Navidar represented Directworks as its sell-side M&A advisor for this transaction.

Microsoft (NASDAQ: MSFT +11.7% in October) – the software titan announced that its commercial cloud business reached $20B of annualized recurring revenue in calendar 3Q17, achieving this goal a quarter earlier than expected. Total revenue of $23.6B (up 6%) and EPS of $0.72 (down 5%) in 3Q17 exceeded expectations as Dynamics 365 grew 69% YOY, Office 365 commercial sales increased 42%, and Azure cloud services also performed well. 

MSFT acquired AltspaceVR, a free virtual reality (VR) social network accessible through VR headsets, such as Oculus and htcVIVE. It hosts virtual events such as stand-up comedy and presidential debate-watching parties. While the network was temporarily closed in July after a loss in funding, MSFT plans to revive and build AltspaceVR into “the world’s preeminent mixed reality community.” Outside of VR, artificial intelligence (AI) is another fast-growth area that MSFT is investing in. It has acquired about 18 AI technology companies over the past few years.

Shopify (NYSE: SHOP -14.6%) – the ecommerce platform’s stock was under pressure in October after a short-report compared SHOP’s advertising practices to the “get rich quick” ads that got Herbalife in trouble with the FTC. Fueling concerns is that 3Q17 gross merchandise volume growth slowed a bit to 69% from 74% the prior quarter and management does not plan to provide 2018 guidance until February 2018, indicating some uncertainty with forecasting. But, offsetting a bit of the pressure, SHOP reported strong 3Q17 results as revenue of $172M grew 72% YOY and exceeded expectations and it achieved non-GAAP EPS profitability a quarter earlier than expected. Also, the stock was up an impressive 132% in 2017 through October, despite this month’s pull back.

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