SaaS Software Cloud Update – April 2017

Public Markets and M&A Activity

SaaS Software Cloud stocks advanced 3.3% in April, compared with the NASDAQ’s +2.3%, the Russell 2000’s +1.1%, and the DJIA’s +1.3%. 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.

Shopify (NYSE:SHOP +11.5% in April) – the ecommerce platform’s stock momentum continued in April, having advanced 77% in 2017 through the end of the month. SHOP’s market cap of $7.9B on 4/30/17 is more than double the price salesforce.com paid for DemandWare ($2.8B, closed 7/11/16). SHOP recently held its annual user conference where it announced continued product innovation. It introduced new sales channels including Buzzfeed, Instagram, Wish, and Kik, joining Amazon, Facebook, and Messenger—more than 60% of its ~400k merchant customers sell on multiple channels. It also launched Mobile Store Apps for merchants to build native apps and several new merchant-services products (e.g., an enhanced card reader).

Cloudera (NYSE:CLDR +0%) – the data management, machine learning, and analytics vendor priced its IPO on the last business day of April. While it priced at $15.00, above the $12-14 range and closed on April 28th at $18.10, Intel reportedly purchased shares of CLDR at $30.92 in 2014. The market cap is about $2.6B. With 500 Global 8000 customers, Cloudera competitors include Hortonworks, Oracle, and IBM. The company’s revenue advanced 57% to $261M in its fiscal year ended January 2017 and posted a net loss of $187M.

RetailMeNot (NASDAQ:SALE +43.2%) – Harland Clarke, a subsidiary of MacAndrews and Forbes, announced plans to acquired the digital offers and gift card provider for $11.60 per share or about $630M on 4/10/17. The deal is expected to close in the second quarter. The purchase price reflects a calendar 2017 EV/Revenue multiple of about 1.9x and EV/EBITDA of about 10.6x. Harland Clark plans to leverage SALE’s audience and brand with its intelligent media delivery subsidiary, Valassis.

Upland Software (NASDAQ:UPLD +25.2%) – the enterprise SaaS software provider is in consolidation and profit maximization mode. It announced a $17M acquisition of a knowledge management software provider RightAnswers ($17.2M on 4/24/17). Besides another smart acquisition, we think the stock reacted positively to UPLD increasing its long-term EBITDA margin target to 40% from 35%. Its 2017 target is 27%.

Athenahealth (NASDAQ:ATHN -13.0%) – the electronic health record (EHR) provider reported disappointing first-quarter results on April 27th due to lower physician utilization, slower enterprise-client onboarding, and short-term promotions. Revenue increased just 11% YOY, to $285.4M, below consensus of $296.9M, and EPS of $0.32 fell short of the $0.46 Street mean. The company also reduced 2017 top-line guidance to ~15% growth from ~21%.

Atlassian (NYSE:TEAM +15.1%) – the enterprise team collaboration platform reported strong 3Q18 results on April 27th, exceeding revenue and profitability expectations. The top line advanced 36% YOY, to $159.9M, with EPS of -$0.08. The company has 85K-plus customers, up 26% YOY, plus another 12,790 from the recent Trello acquisition ($425M on 1/9/17), which is expected to contribute $20M of revenue in 2018. TEAM increased overall company guidance for 2017 revenue to $616-618M from $611-615M and EPS to $0.35 from $0.32-0.33. The company also significantly raised FCF guidance to $173-$177M from $160-$165M.

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