Pacific Crest Initiates Coverage on SuccessFactors With 'Outperform' Rating

Shares of on-line software vendor SuccessFactors (SFSF), which came public in late November, are on the move this morning, rising 6%, after Pacific Crest Securities analyst Brendan Barnicle iniated coverage of the company with an Outperform rating. That puts SuccessFactors in the select group of online software firms with buzz such as NetSuite (N), which came public two weeks ago, and Salesforce.com (CRM).

With 2 million users, SuccessFactors is “the world’s largest on-demand application provider,” argues Barnicle. The company operates a data center by which clients can open a Web browser and see reports on their employees’ performance, and also track goals they set for employees, and various other tasks in what’s known as “human capital management.” Salesforce has only half the number of customers as SuccessFactors, writes Barnicle, and he makes the argument that the company has a chance to sell other programs aside from those used by the human resources department.

So what is the stock worth? SuccessFactors will have just $61 million in sales in the year ending today, Barnicle estimates and it won’t be profitable through anytime soon, with Barnicle projecting the company to lose $1.95 per share this year and $1.74 next year. He argues the stocks such as SuccessFactors and Salesforce.com (which is profitable) must be valued based on revenue booked. Booked revenue should rise 42% next year and 50% the year after, he writes. SuccessFactors has been trading at around 3.1 times next year’s bookings of $171.1 million, and he thinks it should trade “at least” at about 4 times, which would be $18.

After the pop earlier this morning, SuccessFactors shares have cooled a bit but are still up 4% at $11.68. The stock is down about 12% from its closing day price of $13.25.