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Amit Amin

SFSF AT A GLANCE

P/E ► -70.0   EV/EBITDA ► -686   ROA ► -9.1% AVG ROE ► -760.2% AVG Debt to Equity ► -71.1   Current Ratio ► 1.02 AVG Interest Coverage Ratio ► -33.0 AVG

 

 

 

 

 

 

Successfactors Inc (NASDAQ: SFSF) develops performance and talent management applications, with 2,700 customers across 60 industries in over 185 countries with more than 4.7 million end users.^[1] The company charges a subscription fee for its products, primarily targeting large organizations with its enterprise software.^[2]

As the company earns its subscription revenues overtime, but has already incurred significant R&D costs to develop competitive software and significant marketing costs to acquire customers, the company has never had positive earnings.^[3] From 2005 to 2008 SFSF has experience rapid growth - revenue rose an average of 107% per year, and gross margins 17% per year.^[4] At the same time rising R&D and marketing expenses have pushed operating expenses up an average of 82%^[4]. However, the company's net income fell for the first time since it went public from 2007 to 2008, from -$75.5MM to -$65MM.^[4] Expecting continued falling expenses, the company plans to become non-GAAP profitable by Q1 2010.^[5]

Barriers to entry have, in general, decreased in the business productivity application industry, forcing SFSF to continue innovating while simultaneously reducing expenses.^[6] This is because of the emergence of low cost development tools and cost-cutting offshoring skills.

Company Overview

SFSF's suite of modules is designed to increase business productivity. This is done through its performance management, goal management, compensation management, succession management, learning and development, recruiting management, analytics and reporting, employee profiling, employee feedback management, employee surveying, stack ranking, and business performance accelerator applications.^[7] These modules are sold through three different applications targeted to different populations. SFSF targets large organizations with its enterprise edition application, mid-sized businesses with its SuccessPractices application, and small businesses with its professional edition application, each with progressively fewer modules.^[2]

On rising sales and a reduction in spending, from the first quarter of 2008 to 2009, revenue has increased 50%,^[8], the cost of revenue has declined 9%, and operating expenses have declined approximately 5%,^[9] leading to a net loss of $5.7MM, a 70% reduction.^[10] Expecting a continued reduction in expenses with concurrent increases in revenue, the company expects to be non-GAAP profitable by the first quarter of 2010.^[5]

Competition

Competition in the human resource solutions industry has been progressively increasing, with low barriers to entry encouraging the rapid development of fragmented competition.^[11]

Competitors of SFSF include: Authoria, Inc., Cornerstone OnDemand, Inc., Halogen Software Inc., Kenexa Corporation, Oracle Corporation, Plateau Systems, Ltd., Salary.com, Inc., SAP AG, Softscape, Inc., StepStone Solutions GmbH, SumTotal Systems Inc., and Taleo Corporation

References

1. ↑ SFSF, 2009 Q1, Item 2, Page 15
2. ↑ ^{2.0 2.1} SFSF, 2009 10-K, Item 1, Page 5
3. ↑ SFSF, 2009 10-K, Item 1A, Page 17
4. ↑ ^{4.0 4.1 4.2} SFSF, 2009 10-K, Item 6, Page 34
5. ↑ ^{5.0 5.1} Seekalpha: SFSF - Q1 2009 Earnings Call
6. ↑ CFO.com - A Buyer's Guide for Software Companies Considering On-Demand Financial Applications to Meet Their Business Requirements
7. ↑ SFSF, 2008 10K, Item 1, Page 8
8. ↑ SFSF, 2009 Q1, Item 2, Page 17
9. ↑ SFSF, 2009 Q1, Item 2, Page 18
10. ↑ SFSF, 2009 Q1, Item 1, Page 4
11. ↑ SFSF, 2008 10-K, Item 1, Page 13