SuccessFactors, An Early IPO

Jan.13.08 | About: SuccessFactors, Inc. (SFSF)

On Thursday, I looked at the new IPO NetSuite (NYSE:N). Another SaaS company that has gone public is SuccessFactors. We will look at the company in detail in this post.

Founded in 2001, SuccessFactors (Nasdaq: SFSF) is a leading provider of on-demand performance and talent management solutions. Its online employee appraisal software automates the performance review process.

Its software also creates a company wide network of information related to employee performance such as skills, career aspirations, culture, and experience. It uses this information to find the right talent that matches not just the skill requirements of a job in the company, but also its “soft” requirements. It uses role-based permission models that keep the data secure and relevant.

SuccessFactors has performance management solutions for all sizes of companies, large, medium, and small. However, its recruitment management solutions are available only for large and medium enterprises. Its integrated suite of solutions also includes goal management, compensation planning, and succession management.

SuccessFactors went public on November 20, a month before NetSuite, and is currently trading around $9. Its market cap is around $462 million, and its revenue was $32.6 million in 2006, and $44.1 million in the nine months ended September 30. The company's net losses were $32 million in 2006, and $49.2 million for the nine months ended September 30. Like most SaaS companies, SuccessFactors also has high up-front investments, and it might be some time before it sees any profit.

A case in point is SuccessFactors’ rival, Taleo (Nasdaq: TLEO) which went public in 2005 and is trading around $22 with market cap of $575 million. It was only in the fourth quarter of 2006 that it started making profit. In the latest quarter, its revenue was $33.7 million, up 36% y-o-y, and GAAP net income was $2.2 million. Its total customers were over 1,380.

SuccessFactors is perhaps somewhat early in going public, and thus, this period prior to profitability will be harder to withstand under public market scrutiny. Nonetheless, with the Enterprise 3.0 wind behind its sails, the company is certainly an interesting one to watch.

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