SaaSIsAFad.com was born to track, report and opine on everything Software-as-a-Service (SaaS) related. As the domain name “____IsAFad.com” might indicate, our web site absolutely believes in the viability of SaaS as a lucrative financial business model. However, as with most things, in the early days of new technologies or markets there tends to be many nay-sayers and non-believers. Therefore we established a sarcastic tone and have reported many facts to support the (we feel at least) obvious trend to SaaS from traditional on-premise software services.
So fast-forward to this morning, February 7th 2014, when LinkedIn (LNKD) reported their latest Wall Street financial results last evening. Their shares were down 8% after they missed their own projected revenue goals and you would think the sky is falling!
Is this a bad precedent for the fate of SaaS companies? Absolutely not!
First, Wall Street (a.k.a. The Stock Market) is treating LinkedIn (SaaS) like any other real company where the scrutiny is intense on the financial bottom-line. The talk not all that long ago about SaaS companies such as LinkedIn not being sustainable is lessened and the conversation has changed from “if they can survive as a company” into “how can they significantly grow the company”. It’s a very different view of the company.
Second, and especially for SaaS companies, the market is still relatively new in comparison to other well-established markets. Salesforce is probably the most recognizable SaaS company and they are only a 15 year old company which is not mature in the big picture. For LinkedIn specifically, not only are they in the SaaS business but they are also leading in a new segment of SaaS with their ‘online professional network’ services. From a stock market perspective, stocks prices tend to get over-inflated when there is great enthusiasm but a clear blueprint for success is not defined. This is the case with LinkedIn where the stock price at $223 per share and a market capitalization valuation of ~$26 billion (x 10-15 times earnings) probably got a little ahead of itself.
For the above reasons we think that LinkedIn, and other SaaS companies, will just be treated as any other company in the future. This is legitimacy for SaaS as a viable business model. So I ask again, Is SaaS A Fad?
Let’s take a look some numbers from LinkedIn who has grown their revenue to over $2 billion annually since being founded in only 2002:
- Membership improved 7% sequentially, to 277 million
- Quarter revenue increased 47%, to $447.2 million
- Forecasted revenue of $2.02 billion to $2.05 billion in 2014
- Below the consensus at $2.16 billion (this is the key to the drop in stock price)
- Market cap = ~$26+ billion
- 4,800+ employees
Not too shabby for a ‘start-up’ *insert extreme sarcasm here*.