SaaS Software Cloud Update – March 2018

Navidar | April 26, 2018

Public Markets and M&A Activity

 The Navidar SaaS Software Cloud Index advanced +0.7% in March and +12.0% so far in 2018, compared with the NASDAQ’s -2.9% and +2.3%, the Russell 2000’s +1.0% and -0.3%, and the S&P 500’s -2.7% and -1.2%, 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.

Oracle (NYSE: ORCL –9.7%) – the enterprise software provider’s stock weakened on the reporting of mixed results for the third quarter and concerns over its cloud performance. The company beat street estimates on EPS, reporting 83 cents compared with consensus estimates of 72 cents, but reported $9.77B in revenue compared with $9.78B expected by analysts, dragged down by slow cloud revenue growth. Total cloud revenues were $1.6B for 3Q18 and the company issued guidance for fourth-quarter cloud revenue that fell below street estimates. The company forecasted 19-23% growth in cloud revenues for 4Q18, against the analyst expectations of 25-27%. Third quarter performance raised concerns over ORCL’s cloud performance in comparison to its peers (Microsoft, Salesforce and Amazon Web Services), which are reporting faster growth.

Facebook (NASDAQ: FB –10.4%) – the social network giant’s stock declined as it faces multiple investigations in Europe and the U.S., along with potentially profit-crimping regulations and limits to its use of data, after revelations that data harvested from Facebook may have been used to influence Britain’s vote to leave the EU and the U.S. presidential election. Research firm Cambridge Analytica improperly gained access to the data of more than 50 million Facebook users and used that data to build a massive targeted marketing database based on each users’ individual likes and interests. The Federal Trade Commission (FTC) has opened a nonpublic investigation into Facebook’s data privacy practices, which raises the risk of civil penalties on data privacy violations and could take multiple years to resolve.

MuleSoft (NYSE: MULE +42.4%) – Salesforce announced plans to acquire the data integration provider for an enterprise value of ~$6.6B, representing a 36% prior-close premium and an EV/revenue multiple of 22.3x. The cash-and-stock deal represents another step in Salesforce’s push to widen its presence in the cloud-services space. MULE’s technology for pulling data from different cloud sources will be used to power the Salesforce Integration Cloud. Together, Salesforce and MULE will accelerate customers’ digital transformations, enabling them to unlock data across legacy systems, cloud apps and devices to make smarter, faster decisions and create highly differentiated, connected customer experiences.

Upland Software (NASDAQ: UPLD +20.7%) – the enterprise work management software provider reported record 4Q17 and full year 2017 results, and provided strong 1Q18 and 2018 guidance. Total revenue increased by 44% to $27.8M in 4Q17 and by 31% to $98.0M in 2017. Adjusted EBITDA increased by 129% to $9.7M in 4Q17 and by 140% to $30.3M in 2017. The company made four strategic acquisitions across verticals that added $48.5M in annualized gross revenues, increased adjusted EBITDA margins from 22% to 35% YOY. The company added 151 new customers and expanded 227 existing customer relationships during 4Q17. Furthermore, 2018 revenue guidance is $120.4-124.4M, up about 28% and adjusted EBITDA guidance is $42.0-44.M, a margin of 35%.

CommerceHub (NASDAQ: CHUB +18.1%) – Private equity firms GTCR and Sycamore Partners announced plans to acquire the distributed commerce network provider for ~$1.1B in an all cash deal, representing a 24.5% prior-close premium to Series A stock and an EV/revenue multiple of 9.5x. Under the deal, all outstanding shares of CHUB’s Series A, B, and C common stock will be acquired for $22.75 per share in cash.

Box (NYSE: BOX –14.6%) – the cloud storage provider’s stock declined on disappointing forecast estimates provided by the company. The stock plunged at the beginning of the month on the earnings report but recovered some of those losses before falling due to a successful IPO by rival Dropbox (NASDAQ:DBX). The company reported slowing paid user growth in 4Q18, along with lower guidance for 1Q19 and 2019, fueling concerns that the company may struggle to reach profitability with increased competition. The company’s forecast revenue for 1Q19 is $139.0-140.0M as per new accounting standards, below analysts’ estimates of $144.3M. 2019 revenue guidance is $602.0-608.0M and adjusted loss per share is $0.20-0.16 per share, as per new accounting standards, lower than analysts’ estimates of $625.7M and adjusted loss per share of $0.20.

Twilio (NYSE: TWLO +11.8%) – the cloud-based voice, messaging and video provider’s stock gained on coverage initiation by Bank of America Merrill Lynch, a buy rating on the stock with a target price of $45, an increase of ~18% from the current price and an expectation of achieving $1B revenue by 2021. The company reported a strong fourth quarter with revenue growing by 40% YOY and outpacing its own guidance.

WageWorks (NYSE: WAGE –13.8%) – the consumer-directed benefits provider’s stock declined on delay in filing of financials with the SEC. The company has officially postponed its 10K filing for 2017, along with its results and call for 4Q17. It has not been able to file its 10K within the extension period provided under SEC’s rule 12B-25.

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