SaaS Software Cloud Update – February 2018

Navidar | March 12, 2018

Public Markets and M&A Activity


The Navidar SaaS Software Cloud Index advanced 2.1% in February and 10.6% so far in 2018, well above the NASDAQ’s -1.9% and 5.4%, respectively, amid volatile price swings—the S&P volatility index is up 80% this year. The sizable sell-off in the beginning of February was driven by inflation and interest-rate concerns, but markets recovered as a rally ensued over the rest of the month. 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.

SAP (NYSE: SAP -7.0%)the large-cap software’s stock weakness was related to its recently announced $2.4B acquisition of Callidus (NASDAQ: CALD -0.1%), resulting in uncertainty about the impact on near-term profitability and SAP’s cloud strategy. Even after absorbing CALD and model-transition headwinds, SAP’s overall operating margin is expected to continue to improve. Also, quickening SAP’s ability to achieve targeted ROI, it has had a reseller, customer, and technology partnership in place with CALD. Much like SAP’s acquisition of Concur, SuccessFactors, and Ariba, we expect CALD to benefit from cross-selling. On a stand-alone basis, CALD generated about $200M in SaaS revenue in 2017 with about 30% growth.

MuleSoft (NYSE: MULE +25.6%)the data integration provider’s stock performed well after reporting strong fourth-quarter results. MULE is benefiting from frequent usage alongside Amazon AWS. The company’s stock had been in the penalty box since its March 2017 IPO due to subpar 2Q17 results and VC distributions (only half way through) that saturated the market. 4Q17 total revenue was $88.7M (up 60% YOY) and 2018 guidance is $405-415M (38% growth), both above consensus. By 2021, MULE is targeting revenue of $1B, representing a CAGR of 35%. Calculated billings growth was 50% YOY in 4Q17, well above the Street’s 30%, and operating cash flow was $8.9M. Additional key metrics were also strong: dollar retention increased to 119% from 116% last quarter and customer count increased 20%, to 1,286.

Sailpoint (NYSE: SAIL +25.6%)the SaaS and on-premise ID governance and administration provider reported strong 4Q17 results as it continues to displace legacy solutions. The stock has advanced 72% since its November 2017 IPO. Revenue of $67.8M increased 53% YOY. Customer count ended the year at 933, up 35% YOY. It inked deals with five of the 15 largest federal agencies, bringing the total to 11. Cross-sell was also strong. Furthermore, SAIL launched a go-to-market partnership with Okta’s access management solutions, which is complementary. SAIL has similar partnerships with others software leaders, including Microsoft.

Alteryx (NYSE: AYX +24.8%)the data prep provider is capitalizing on the emergence of Chief Data Officers that are investing heavily in next-generation analytics solutions. 4Q18 billings grew 62% YOY, up from 40% last quarter, and free cash flow was $11.1M. New customer growth accelerated and it experienced growing traction in the ML/data science market. Net dollar retention rate remained above 130%. Furthermore, 2018 revenue is guided to be $176-179M, up about 35%.

Okta (NASDAQ: OKTA +31.0%)the identity management SaaS provider pre-released strong 4Q18 results. Revenue grew about 60% YOY, to $77.0-77.5M, and calculated billings was about $104M, 65% growth, up from mid-50%s over the last few quarters. Non-GAAP operating loss was $(12.3)-(11.3)M, above consensus. Also, total customers advanced by 400 to 4,350 total and customers with annual contract value over $100,000 increased by 88 to 691. Furthermore, dollar-based retention rate also remained strong at 121%.

eGain (NASDAQ: EGAN +53.5%)the customer engagement SaaS provider continues to make progress on its SaaS and recurring-revenue business model transition, which now represents 82% of total. Total revenue of $15.3M grew 2% and SaaS revenue of $7.7M grew 23.8% YOY while operating cash flow came in at $2.6M. EGAN will continue investing in its channel ecosystem, building on the positive momentum with Cisco and renewed interest from Avaya.

LivePerson (NASDAQ: LPSN +20.9%)the web-chat customer care SaaS provider reported strong year-end results. 4Q17 revenue exceeded consensus due in part to continued strength in its enterprise messaging solution, LiveEngage. Revenue was $57.4M (up about 2% YOY) and free cash flow was $1.5M. LPSN inked a record number of six- and seven-figure deals, plus its largest ever—$20M total contract value. TTM average revenue per user increased about 10% YOY to more than $220K. Interestingly, mobile now accounts for 40%+ of total interactions. (NASDAQ: WIX +22.9%)the web builder for small businesses reported strong 4Q17 results. Revenue grew 41% YOY, to $118.5M, and free cash flow was $19.5M. Premium subscribers grew 31%, to 3.2M, and sequential net adds were 170k. Average revenue per premium user grew 1% sequentially to $37.18. Also, WIX now has 140k users of its new product, Code (web application development platform), after only a few months of being live. 2018 revenue growth guidance is 40%, to $591-595M, with free cash flow of $98-100M. WIX also expended its reseller partnership with Google.

RingCentral (NYSE: RNG +15.4%)the communications as a service provider reported growth acceleration and margin expansion. It landed 15 enterprise deals, up from 10 last quarter. SaaS revenue was $129.7M, up 32% YOY, and non-GAAP EPS of $0.07 came in a penny above consensus. Channel bookings increased more than 100% YOY for the seventh sequential quarter, contributing about 35% of overall bookings (up from 20% last year). 2018 total revenue is guided to be $629-639M (about 25% growth). Non-GAAP operating margin is expected to be 7.8-8.2%.

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