The first thing I did Monday was go to Yahoo! Finance and print out the 2009 performance data for the 42 publicly traded tech stocks that I track. I was especially interested in seeing their year-end closing prices and market caps and the 52-week trading ranges. The next step was to look at how well they did against their peers, and then compare how some sectors, such as cloud apps, did relative to their ERP brethren.
Over the last 12-plus months, I’ve written several pieces detailing the stock prices and market caps for five cloud or software-as-a-service (SaaS) vendors. In a blog post last June, I asked “Are SaaS Stocks Better Investments?” This was a follow-on piece to a December 2008 post that asked, “Is Now the Time to Buy the ‘SaaS 20’?”
If you invested after reading the December post, your portfolio would be up by 300% to 400%. If you waited until you saw the June post, you still would have made a lot of money. In fact, it was nearly impossible to lose money investing in enterprise application stocks last year.
The 2009 lesson: Buy cloud
Back to the results: NetSuite closed 2009 at $15.98 per share, up 89.3% since December 31, 2008. Over the last few months the company has consistently flirted with the $1B market cap mark. It ended the year valued at $996.2M. RightNow ended the year at $17.37, up 124.7%. Its market valuation topped $552M.
Salesforce.com closed 2008 at $73.77, up 130.5%. I bet you wish you loaded up when it dropped to $25.19 last winter. If you had, you could be reading this on your own island near Richard Branson’s. If the company’s share price grows another $6.00 or $7.00, salesforce.com will have a $10B market valuation.
The real stars, though, were archrivals SuccessFactors and Taleo. SuccessFactors finished the year at $16.58, up 188.85%. Taleo’s share price jumped 200.38% over the course of 2008, ending at $23.52.
How did the ERP vendors do? Epicor led the pack with a 58.9% gain, followed by QAD (+45.8%), Lawson (+40.3%), Oracle (+38.3%), and SAP (+30%). Despite their decades of longevity, Epicor ($467.8M) and QAD ($190.9M) ended 2009 with lower market valuations than all of their younger cloud counterparts. While all of the ERP vendors are adding cloud offerings, it doesn’t seem to be happening fast enough for investors.
Enough about Wall Street—what do buyers want?
When I returned to the office after the year-end break, there was a 320-page study from Piper Jaffray on my desk. The report opened with the results from the investment research firm’s recent survey of 100 CIOs and IT managers. While quant jocks may be disappointed that the survey included only 13 respondents from firms with $1B+ in annual revenue, there were some interesting results nonetheless.
Today, cloud applications represent a small percent of software spend. In the Piper Jaffray study, it’s 5.7%. This is expected to grow to 13.5% of total spend over the next five years. Personally, I think that figure is too conservative.
For now, 72% of respondents are leaning toward best-of-breed vendors for cloud applications. That said, though, when asked to select the tech vendor that would be a “material part of your organization’s cloud-computing plans,” Microsoft earned top billing with 65% of the vote, followed by Oracle (61%), VMware (55%), Google (53%), and salesforce.com (52%).
If you’re curious about SAP’s ranking, only 11% see the ERP leader as a key cloud vendor. The relatively low response placed the company 16th on the list, trailing RIM, Dell, Red Hat, Amazon.com, IBM, Sun, EMC, Apple, Concur, and Yahoo. While I suspect the numbers might have been different if you looked only at firms with annual revenue over $1B, it does show that SAP is going to have to get more vocal and visible with its cloud plans. In the past, I had suggested that the company buy one of the human capital management (HCM) leaders, but it resisted because of price. Unfortunately, the price has only gone up.
Cloud side benefit: “The end of piracy”
If you read the report, you may be just as surprised as I was when coming across another point made by Piper Jaffray’s Mark Murphy and Brian Schwartz. They suggested that broader adoption of cloud applications could mean the end of software piracy. The analysts point to estimates that show 25% to 50% of all software deployed in the United States is used illegally. They see cloud as enabling software vendors “to realize the full potential of their addressable market” in the BRIC countries.
When I finished the tome, I immediately wanted to start on a similar survey of the world’s largest companies. I will leave that to my esteemed colleagues at Gartner.
It’s time to pass the FTM baton
This will be my last edition of First Thing Monday, a weekly electronic newsletter we started eight years ago. Long-time clients may remember its predecessor, The AMR Alert. When we first started The Alert in 1993, it was available only by fax. East coast clients would often wait to receive it before they went home for the weekend.
For nearly 20 years I’ve been proud to count you as readers and, more importantly, as friends. On Monday, I will be starting a new job with a technology provider. I look forward to seeing you at the annual AMR Research Supply Chain Executive Conference and the various Gartner Symposia worldwide.
I’m pleased to tell you that FTM will continue under the direction of Kevin O’Marah and Dennis Gaughan. They’ll continue to bring you fresh insight and analysis every Sunday night.
Be well, and thank you for all of your support.
