SuccessFactors IPO - My Take and What It Means for HCM
On Friday, SuccessFactors filed their S-1, entering themselves into the relm of a soon-to-be publicly-traded company (with a new fancy logo and everything). A copy of the S-1 filing can be found here. This has been rumored for a few months now. As recently as last month, someone suggested to me that they had already selected banks.
SuccessFactors is a company I have written a lot about here and here. Bill Kutik also has a great article on the company in his recent article in HR Executive Magazine. The IPO announcement has promoted the BlackBerry to buzz all weekend. Many questions from “what do you think” to “I didn’t realize they were operating at such as loss” to “they need to get out fast at the rate they are going”. Although I am not a financial analyst, a quick review of the S-1 provides an interesting peek into the company. A couple of observations…
- The company is losing a staggering amount of money. The company incurred net losses of $32m in 2006 and is on track to loss $50m this year
- 2006 revenues were only $32.5m, significantly lower than I had previously estimated in some market forecasts. They are currently on pace to achieve approximately $65m in revenue this year. As a SaaS vendor, deferred revenue is important. SuccessFactors deferred revenue is currently $56.8m.
- Sales and marketing expense is nearly 100% of revenue. The company is spending a lot of money with most of it going towards a blue-chip direct sales force. In comparison, Netsuite, another SaaS vendor who also recently filed their S-1, is operating at about 65% of revenue.
- The company is investing heavily in product development. In 2006, 33% of revenues went towards R&D. Netsuite, in comparison, was at about 21% in the same period. Also similar to Netsuite, the company only operates one data center in the USA, something my friend Jason Wood expressed concerns with NetSuite. Interestingly, SuccessFactors operates 2 data centers in Europe although the region only accounts for about 3% of revenue.
What does this mean for the industry? A successful IPO will be great news for the industry, providing increased visibility in the HCM market, something that all vendors in the market should be cheering. The company is obviously taking a “cold war” approach to the market, focused on outspending the competition. This strategy will pose a significant challenge to many vendors that don’t have the financial resources nor the ambition to dominate the market. They are betting big and it shouldn’t go unnoticed that their are some significant risks attached to their strategy.
Why now? The financial markets are strong and the IPO window has obviously opened for many technology companies. Although it is always tough to predict market timing, and many are already predicting a short IPO window of opportunity, now seems to be a good time for a public offering. The company obviously could use the capital to fuel its growth plans too.
SuccessFactors is operating in a competitive market with some great companies including Authoria, Halogen, Plateau, Cornerstone OnDemand and Vurv to mention a few. Taleo also has a much anticipated release of their performance management solution due out in the next few months…and I wouldn’t write off Oracle or SAP yet. Each one of these companies has taken a unique approach to the market and time will tell which approach will be the most successful.
July 23rd, 2007
17 Comments Add your own
1. » SaaS Goes IPO (ag&hellip | July 23rd, 2007 at 3:08 pm
[…] S-1 filing was first pointed out to me by fellow Enterprise Irregular Jason Corsello, who has blogged on this IPO and Successfactors in general several times. Jason has some of his own excellent analysis, which I […]
2. Lovthe Blog | July 23rd, 2007 at 9:42 pm
Buying a market can be a strategy if its executed on a strong SaaS platform. Salesforce started off exceeding revenue with sales and marketing spend.
The difference here is the Gross Margins Salesforce posted where excellent (2003-80%,2004-82%) proving they had low cost to deliver on the revenue. -check out their S-1 at sec.gov
Successfactors on the other hand, is delivering terrible gross margins (2005-41%,2006-56%) showing a very high cost to deliver their solution.
If you have built a scaleable application it will show in your gross margins.
3. » SuccessFactors jo&hellip | July 24th, 2007 at 6:59 am
[…] some excellent analysis of the SuccessFactors filing from two Enterprise Irregulars: Jason Corsello posted his thoughts on Friday, and fellow ZDNet blogger Josh Greenbaum added his own thoughtful questions yesterday. […]
4. SuccessFactors IPO??? I&#&hellip | July 24th, 2007 at 9:56 pm
[…] - or else I might refrain from commenting on this, but looking over the SuccessFactors IPO (thanks Jason) just makes me […]
5. tom obrien | July 24th, 2007 at 10:00 pm
Hi Jason:
Long time no comment, but when I saw your write-up on this IPO, I just couldn’t resist.
I was writing a long detailed comment, (losses > revenue, questionable accounting, shrinking customer size, profligate spending) on this but instead went ahead and posted my commentary over on my blog.
If this comes out, it is a sure sign that we are back to irrational exuberance.
Tom O’B
6. systematicHR - Human Reso&hellip | July 26th, 2007 at 5:50 am
[…] was written before the IPO announcement. Check out Jason’s SuccessFactors IPO announcement here. Bookmark:These icons link to social bookmarking sites where readers can share and discover new […]
7. Hypefree | July 26th, 2007 at 6:40 am
Well… this certainly explains the explosion of hype around this company over the past few months. Now the covers have been pulled back and we can see beyond Lars bluster. All politeness aside - To me it looks like he has been outright lieing about the make-up of SuccessFactor’s customer base and the number of end users over the past couple of years. Kind of goes against the SF mantra of integrity and forthright communication that they put forth in their values statements. Even insiders at SF that I know were not aware of the amount of money the company has been losing.
8. Ian Cole | July 27th, 2007 at 4:56 am
There are also European players in the emerging Talent Mnagement market that readers may want to look at. One is our company, StepStone, which in Q1 2007 posted revenues from e-recruitment and talent management of $12m, is growing at 50% organically year on year and is both profitable and cash positive.
This market is rapidly globalising and readers could do worse than look at http://www.stepstone.com/EN/IR/ for a non US perspective
Ian Cole
CFO StepStone
9. SuccessFactors IPO and th&hellip | July 27th, 2007 at 8:47 am
[…] 27th, 2007 · No Comments Jason Corsello’s item on SaaS poster child Success Factor’s recent S-1 filing had me thinking - a […]
10. Colin Kingsbury | July 31st, 2007 at 1:55 pm
Recurring revenue models can wash away a whole lot of sins if the renewal rates are good. From where I sit, I see $32m spent in 06 to acquire $32m in revenue. When that’s recurring revenue, that’s a great model. Bear in mind that Kenexa et. al. have been paying 3-4x revenue to acquire companies in the space that are full of thorny legacy problems.
11. Ian Cole | October 11th, 2007 at 2:43 pm
In case you missed it Successfactors filed an amendment to their S1 yesterday. Most significant change is the disclosure that they are burning cash like it is going out of fashion and have had to borrow another $10m - see page 26.
12. Marvin | October 19th, 2007 at 12:02 am
Pretty disappointed in Successfactors’ story really. A lot of bluster. How about those others out there that are going global and expanding? Hard to know how their real revenues are stacking up - maybe investors are scrutinizing more now that successfactors filed and oncovered some nasties.
13. Marvin | November 4th, 2007 at 11:14 am
I am also disappointed in the Vurv product lineup. They have a long road ahead of them and a long list of hit and runs behind them.
14. The Human Capitalist &raq&hellip | November 16th, 2007 at 9:54 am
[…] Their story is very well-known as to their “market share at all costs” play right now, but CFO Felt did articulate a goal to become cash-flow positive by Q3 […]
15. EHRMS | December 6th, 2007 at 11:46 am
Well, now they have floated and pocketed some $100mio, let’s see where this money is going to more mkt or r&d or both? however, one question remains: buy or not to buy …
16. The Human Resource »&hellip | April 23rd, 2008 at 7:28 pm
[…] - or else I might refrain from commenting on this, but looking over the SuccessFactors IPO (thanks Jason) just makes me […]
17. Ex-SF Guy | January 13th, 2009 at 10:01 am
Well, as a bit of a follow up to this, SuccessFactors has done a round of lay-offs in 2008, and as recent as Jan 2009.
There goes the bubble…
Ironically, SuccessFactors hired a large number of people in 2007 in order to bring the headcount to a major “high” but then what was really weird was that at the time of filing the S1, some people were voluntarily leaving: Something you wouldn’t see in a company where everyone would supposedly be enthusiastic to stay on and take advantage of the stock options and all that.
Really fishy… So many newbies left or were let go.
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