SaaS Software Cloud Update – August 2017

Public Markets and M&A Activity

The Navidar SaaS Software Cloud Index was flat in August, but increased 19.1% in 2017 through the end of August, compared with the NASDAQ’s +1.3% and +19.4%, 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.

Stamps.com (NASDAQ: STMP +29.1%). The leading provider of Web-based mailing and shipping solutions reported strong 2Q17 results on 8/2/17. Shipping growth continued to perform well, advancing 50%, due to a combination of healthy growth in new customers and volume. STMP also benefitted from two USPS contract renewals that carried more favorable terms. Revenue of $116.1M accelerated 38% YOY while EBITDA margin improved 4.5 percentage points to 50%, exceeding expectations. Also, average revenue per user increased 20% and customer additions grew 14%. ShippingEasy and ShipStation are two of STMP’s critical SaaS software acquisitions—Navidar represented both firms as their sell-side M&A advisor.

Shopify (NYSE: SHOP +20.1%). The ecommerce platform’s stock continued its tear, advancing 159% in 2017 through August, due to significant outperformance and momentum with key operating metrics. While reporting 2Q17 results on 8/1/17, revenue of $151.7M advanced 75% YOY, GMV grew 74%, and take rate expanded to 1.37%. SHOP is gaining share with SMBs and enterprises in part through the help of its partner ecosystem. More than 500K merchants across 175 countries now use Shopify and over 1.2M people are active users of the backend platform. Merchant growth was 56% in North America, 82% in Asia, 168% in South America, and 70% in Africa.

Ultimate Software (NASDAQ: ULTI -11.5%). The leading SaaS payroll and human capital management company reported disappointing 2Q17 results on 8/1/17. While EPS of $0.93 were two pennies above Street consensus, revenue fell short of expectations (despite growing 20.5% YOY, to $224.7M). Furthermore, ULTI lowered full-year guidance by four percentage points to 20% and operating margin by two points to 19%—its first full-year guidance reduction in about four years. The shortfall and reduction were attributed to delayed customer implementations, extending by about three months for enterprise and two months for midsize—ULTI only invoices clients for software once the deal goes live. Still, the company has historically been one of the best executing among its public SaaS peers, the demand environment is strong, and the competitive landscape is mostly unchanged.

Hortonworks (NASDAQ: HDP +26.8%). The enterprise data management software platform reported surprisingly good 2Q17 results on 8/3/17, overcoming concerns around competition, its open-source model, and recent senior management departures. Revenue of $61.8M increased 42% YOY, above consensus. HDP experienced improved execution in the Americas with 29% growth, up several points sequentially, including 10 deals over $1M as well as international strength.

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