Tuesday after the close, Jive Software (JIVE) reported Q2 numbers relatively in-line with analyst estimates. Revenue climbed 51% yoy to $27 million, but earnings were negative at -$0.19 for the period. This fast growing 'social business' provider has an innovative product, but its competitive advantages are poised to erode in the near future.
Jive Software creates private social networking software that enables clients employees to collaborate more efficiently. This is undoubtedly the next step for businesses worldwide, but I don't think Jive will reap the financial benefit. Most likely, because there won't be any.
The ability to create cloud based social business networks is becoming increasingly commoditized. Tons of start-ups are popping up with almost indistinguishable features and cheaper price points.
For example, Yammer (recently acquired by Microsoft (MSFT)) provides essentially the same service for cheaper ($5 & $15 plans vs $12 & $18 plans). Google (GOOG) also recently introduced a cloud based collaboration/storage program called Google Drive, which is completely free.
In a possible response to Google's new service, is the new addition of a free option offered by Yammer, and Jive's new 30 day free trial.
Both companies are clearly having a hard time attracting clients with traditional pricing plans. Jive only added 31 customers in the quarter (just a 5% increase) and admitted that it was mostly due to the new 'TryJive' marketing tactic. Ironically, TryJive is the free 30 day trial program, thus its very possible most of these 'new' customers aren't here to stay.
The bulk of Jive's revenue growth is now coming from its existing clients, when they add users. Which is definitely a good thing, but slowing growth in the amount of new clients does raise a cause for concern. This could mean Jive's competition is already causing a significant impact in the space.
Even with slowing growth, and an increasingly crowded competitive landscape, Jive commands one of the highest price/sales valuations on the market.
2012 revenue is expected to be about $110 million, representing a price/sales multiple of about 11x. Keep in mind that Jive is still unprofitable as well.
Earnings projections for 2012 are around -$0.40 per share. Analysts see earnings increasing in 2013, but remaining negative at -$0.16 per share. Projections (which are falling) would indicated Jive could potentially post its first profit in 2014, on somewhere between $160-$200 million in revenue. However, I believe that is unlikely, by 2014, cloud based social business solutions will be exponentially better and easier to duplicate. For Jive's model to continue it would have to maintain a huge competitive advantage over newer/cheaper services.
Jive is priced for perfection. This is most likely due to its association with the new wave of 'social' business. If recent price action in any other highly priced 'social' stocks (Zynga (ZNGA), Facebook (FB), Groupon (GRPN)) is indicative of Jive's future performance, things aren't looking good.
Jive appears to be an attractive short candidate, because of an overinflated sales multiple and a failing business model.