Thursday, December 8, 2011

SuccessFactors - An amazing tech story through its financials and a solid grab by SAP!

I will take a slight detour from Analytics and talk about SAP's acquisition of  #1 cloud company SuccessFactors (SFSF). Announcement

The combination of SAP & SFSF will produce a cloud powerhouse in the cloud segment of the enterprise software market  and that is just starting to take off…

Strong business rationale:
·         Gartner - HCM to be a $10B by 2015, Talent Management alone will be a $4.5B with 75% of it coming from cloud based apps
·          SFSF is:
o    #1 HCM solution in the cloud
o   has 15m users from company of all sizes (CRM has only 3m users) in diverse 60 industries from across the globe (Example: Siemens has 450K seats)
o    60% recurring revenues from existing customers
o    90% of the growth is organic as oppose to Salesforce
o   Has just 14% overlap with SAP customers – a tremendous upside for both companies (with total addressable market of 500m employees of all SAP customers)

·         For SAP, SFSF will be a top-line acquisition with less emphasis on cost-synergies…
·         Deal will be slightly dilutive on EPS in 2012 but will be accretive in 2013 with significant upside to our revenues in 2013

  • SAP paid $3.4 B to acquire SFSF which is not profitable yet.
  • SAP is paying ~10x for 2011 revenues, a multiple HP paid for Autonomy
  • For SFSF, street expects $332M in 2011 revenues; SFSF had $230M YTD revenues for the first nine months with $91M coming in Q3’11
  •   As of Sep, 2011, SAP had $5.2B in cash. The SFSF deal is all cash with $2B coming off SAP's own war chest and ~$1.4B of debt. 
 Taleo with 2011 expected revenues of $324M is barely profitable. Workday is on track to $320 million in billings in 2011, and is nearing profitability. Workday is preparing for an IPO.

Now let us talk about SFSF’s amazing growth over the past 9 years:

SFSF – a company which delivered a PERFECT hockey stick growth since 2002:

A revenue growth story that is enviable:

Operating structure has shown substantive improvement over the past 5 years:

Net net for SAP, a solid acquisition and timing couldn’t have been right. The ride has just begun…

Source: Company Financials and Analyst Calls

1 comment:

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