SaaS shares buoyant as consumer-focused firms founder

By Sooraj Shah
06 Dec 2012 View Comments
Screen full of share prices

Another day, another potential initial public offering (IPO). But unlike Facebook's headline-grabbing stock market debut, the IPO of enterprise software-as-a-service (SaaS) provider SugarCRM is unlikely to attract a lot of fanfare.

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"Our goal is to be a large standalone company. We see us as part of the $18bn plus [SaaS] market as a large public company, and we hope to get there someday, potentially next year," Larry Augustin, the CEO of SugarCRM told Computing.

But while a SugarCRM IPO might not spark off a media frenzy, the prospect is certainly attracting a lot of interest from investors – which is what really counts.

Media hype certainly hasn't helped Facebook's stock market performance. The social media giant's close price on the day of its IPO was $38.25 a share, at the time of writing it was $27.55 a share – and recently it was only $23.94 a share, down two-thirds on its original share value.

Other internet firms to suffer post-IPO blues include retail couponing firm Groupon, whose share price has plummeted from $26.11 on the first day trading to only $3.84 at the time of writing, and gaming firm Zynga, whose shares have slumped from $9.50 to $2.29.

In contrast, enterprise SaaS offerings have been a hit in the past year, with firms like Eloqua ($12.89 per share on the day of its IPO, $17.69 per share now), ServiceNow ($24.60 a share at IPO, $29.84 today), and Workday ( $48.69 at IPO, $48.83 today). 

So why is the landscape so different for the internet firms compared to those using that same global network to distribute software?

Jason Purcell, CEO of tech-focused investment bank First Capital, explains that unlike the enterprise-focused firms, consumer-oriented companies cannot offer the same security to investors as they are less predictable. B2B companies sign multi-year deals and often have a clearer picture of how their subscription models will grow.

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