On-Demand [or SaaS] Index: Still Skidding but Look Who is Gaining

It continues to be a tough year for financial, tech and SaaS stocks. Our On-Demand Index is down 16.74% YTD. In comparison the Nasdaq Composite index is down 11.77% and the iShares S&P GSTI Software Index Fund (IGV) is down 10.23% while the Dow Jones Industrial Average is down -8.79%. Of course, as I write this the Dow futures is reading a 500 point drop at the opening of Tuesday morning’s (01/22/08) session Wall Street so it is likely all these numbers will be much farther down very shortly.

Out of the eighteen stocks in the index, three stocks have gained this year: athenahealth, Inc (ATHN), The TriZetto Group, Inc. (TZIX) and Constant Contact, Inc. (CTCT). These companies may be in “defensive” areas that will fair well (or at relatively better) than other industries. athenahealth and TriZetto Group are both in health care which is a classic defensive industry. Constant Contact provides small business e-marketing which at first glance may appear susceptible to a recession but maybe not. Constant Contact provides a fairy inexpensive approach (less than a couple Starbucks’ visits?!) to enable small businesses to keep in touch with existing customers and reach prospects. While large firms may cut advertising or marketing expenses, small businesses may feel this service provides a solid ROI.

The table (below) lists year-to-date (YTD) returns and percentage off from their 52 week highs for the individual components of the On-Demand (or SaaS) index.

Are on-demand stocks recession-proof or bear market proof? Let’s distinguish between the two ideas. First, a company is recession-proof if it can avoid its business and sales declining during an economic downturn. For on-demand most will not be recession-proof but some might. We will discuss further in other posts. Second, a bear market refers to a drop of twenty percent from a market’s high. Based on the above table on-demand software companies are certainly not bear market proof with 15 out of 18 already crossing that level.

Disclosure: None