The second quarter of the
year typically proves to be one of the strongest. This time around not
only we were not
disappointed but we also started seeing some strong upside for the
remainder of
the year. Both our enterprise SaaS and
adtech platform portfolio companies performed extremely well, and a few
(both
from enterprise and adtech) are seeing strong enough demand that could
cause
them to increase their 2H13 bookings and revenue targets. As public
SaaS companies are starting to
report quarterly results we are starting to see similar strong
performance by
some of them, whereas the majority are expected to at least meet analyst
expectations. The North American market fuels this growth,
whereas international markets, particularly Europe, remain a concern.
Also, we are seeing more activity in certain
industries such as retail, parts of manufacturing, and logistics, where
application budgets are holding steady and even increasing. In other
industries we continue to see
budgetary pressures as I had mentioned in last quarter’s commentary.
The
public enterprise SaaS companies we monitor, e.g., Netsuite, Workday,
Demandware, ServiceNow, Jive, Cornerstone OnDemand, have either started
announcing or are expected to announce strong 2Q13 results, that are at least
in-line with analyst expectations. In
fact Netsuite beat analyst expectations.
The public adtech companies had a rougher time during 2Q13. Tremor Video and Marin Software are two
adtech companies that went public during the quarter and the market didn’t
welcome them with open arms. They started
trading down soon after their IPO.
Similarly, Valueclick and Millennial Media continue to be scrutinized by
public markets. Two other private adtech
companies, Yume and Adap.tv, are expected to go public during this quarter, and
a few more will file to go public before the end of the year. I believe that the companies which have
either already filed to go public, or are planning to file, are of higher
quality than the ones that have already gone public. As a result, I wouldn’t be surprised if their
stocks perform better in the public markets than the current set of public
adtech companies.
There
were two acquisitions worth mentioning: Salesforce’s acquisition of
ExactTarget
and Adobe’s acquisition of Neolane. In
addition to the size of these transactions, it is interesting to note
that they
allow both acquirers to strengthen their CMO suites. Another
interesting SaaS transaction was the
acquisition of CompuCom by TH Lee, a buyout firm. In the broader cloud
category I should also
mention IBM’s acquisition of SoftLayer.
Large private equity firms are increasing the pace of their investments
in SaaS and adtech companies, e.g., Insight Venture Partners’ investment
in
Brightedge. Finally, SAP acquired Hybris which derives a relatively
small percentage of its revenue from a SaaS application even though the
majority comes from on-premise software.
Positive aspects of our SaaS portfolio’s performance:
Strong license revenue growth of 10-30% QoQ
for the online advertising platform companies, and 15-20% of the remaining SaaS
companies. We are seeing an accelerating
trend by brands to enter into yearlong contracts with adtech platform
companies, in the process bypassing their ad agencies and foregoing
campaign-based contracts. I had first
reported this trend during last quarter’s commentary. This type of contracts provides more predictable
revenue ramp to adtech platform companies that the public markets appreciate.
The accelerating adoption of SaaS
applications continues. Our enterprise
SaaS portfolio companies are signing more enterprise customers on a quarterly
basis and they expand their footprint within each client enterprise.
Steady renewal rates (90%+) and improvement
on the churn we had seen in the social application companies.
Sales pipelines growing faster than in the
past.
Large IT vendors continue to move
aggressively to partner with private SaaS companies as they are trying to
incorporate more cloud-based solutions in their portfolio.
Negative aspects of our SaaS portfolio performance:
The negative macro environment outside the US
particularly in Europe, and less so in Asia.
This is having more of an impact to our adtech platform companies.
Mobile SaaS solutions are attracting more
attention but not big dollars yet.
Talent acquisition, particularly for sales
and engineering remains difficult.
Under normal market conditions the second quarter tends to be better
than the first and this year there was no exception. However, 2Q13 gave us more indications that
this can end up being a strong year for our SaaS portfolio if the economy continues
to mend and remains in its current trajectory.
