Buy Jive Software At Historic Low Prices

| About: Jive Software (JIVE)


Jive Software hit new lows on Friday following a poorly received Q2 earnings report. The stock traded to new historic lows.

Credible sources maintain that Jive is for sale. The new partnership with Cisco is said to be a potential catalyst toward an acquisition.

Recent heavy insider buying coupled with large new hedge fund stakes indicates that the smart money is making a big bet on the potential upside.

Absent of any deal, the company on its own offers a very good value proposition trading at only 2x sales ex-cash with strong revenue growth and other metrics improving.

Jive Software (NASDAQ:JIVE) has been pretty depressing to follow over the past few years. After surging on the day of its IPO after pricing well above expectations, the stock took a beeline to nearly $30 in early 2012 before closing below $7 on Friday. What was a well played IPO has turned into an unmitigated disaster for early investors. This was accentuated following a cut in billings guidance that sent the stock spiralling down to new historic lows. As a strategic opportunist who has been following Jive for years, finally I was ready to dip my toes in the water.

Everybody knows that I love the busted IPO story. Often public investors can even get a better deal than early venture capital backers, while taking only a fraction of the risk. One of the advantages of having a wildly successful IPO is the mountains of cash that are raised. For this reason Jive has a pristine balance sheet and combined with only a very modest cash burn it has bought itself several years to grow the business and seek a suitor without having to worry about dilutive fund raising or needing to take on debt.

In March, Re/code reported that Jive has been actively exploring a sale. Frank Quattrone's Silicon Valley investment bank Qatalyst Partners has supposedly been retained by the company. On Thursday, the day of the Q2 earnings release, Jive shares spiked on comments from a Rosenblatt Securities analyst which indicated that an acquisition of the company by Cisco (NASDAQ:CSCO) is a likely outcome if the recent collaboration between the two parties is successful.

As everybody knows, I like to follow the smart money. My Jive investment is no exception to this rule. On May 14, Raging Capital reported a 5.9% passive stake in Jive. William Martin, the principal of Raging Capital, has a history of shareholder activism. He also is a notable speaker at prominent hedge fund events like the MIT Sloan Club and is very well respected in the investment community. Furthermore, Empire Capital has accumulated nearly 9% of the shares in the open market during the first half of this year. Early venture capital backers Sequoia Capital still own 20% of the company many years later and clearly looking for an ideal exit. Finally, Jive CEO Anthony Zingale bought 100,000 shares for $7.55 on June 10.

Jive has over $100M in cash as of June 30. With this backed out, the company trades at a smidgen over 2x FY2014 sales. I'm encouraged by the reported declines in SG&A as a percentage of revenue as well as the nearly 250 basis point YOY increase in gross profit product margins. This tells me that the acquisition story makes sense as Jive has a very scalable solution. One popular blogger notes that analysts are missing the fact that Jive is in the midst of a fundamental transition from its current intranet business to an external subscription-based cloud solution platform powered by JiveX communities and new product verticals.

Given all of these factors, I believe that Jive is simply too cheap to ignore at this current historic low price. Investors not only receive a significant discount to the original IPO offering but can take comfort that they are betting with the smart money. That is the prominent hedge funds, venture capitalists and the biggest insider of them all - the CEO. I believe that the company will indeed be acquired in 2014. However, if this does not ultimately take place I can take solace in the value proposition of the investment and the distinct growth story at work. All of these factors will likely drive share prices higher off the bottom and I'm conservatively looking to double my money in either case.

Disclosure: The author is long JIVE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.