SaaS Stocks Not Immune to Market Earthquake

By samooresamoore (1251644897|%a, %b %e at %I:%M%p)

Introduction

Recently, as I was browsing through Technorati and Bloglines to find new RSS feeds related to SaaS, I came across an extremely interesting (and uplifting) blog post about SaaS: A Recession Proof Sector of Technology.

If the U.S. heads into another recession, corporations likely will rein in information technology spending, and consequently, software companies will be hurt. But one class of software maker-Software-as-a-Service, or SaaS-managed to thrive during the 2000-2002 downturn and should continue to be recession proof.

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The article was written in January of this year so at this time the market issues were still brewing underground but still visible in a lot of people's minds. Why would Software-as-a-Service be recession-proof? The post does not explicitly mention it, but here are three guesses:

  • SaaS revenue is recurring and not dependent on new sales
  • SaaS applications can become a vital part of a business that just cannot be "turned off"
  • SaaS innovations are reducing IT costs for companies and may be aided by a recession

At 12:54PM when I read this archived Forbes post, I was completely oblivious to what had happened with the stock market today (September 29th, informally referred to as Red Monday). Until about thirty minutes ago, I whole heartedly believed that the SaaS industry was made of "Chrome" and "Mesh" - inpenetrable and flexible. Apparently I (and Forbes) was sadly wrong.

(Note: If you're under a rock and do not know what is going on with the financial world, check out this blog post I found on Technorati on the Subprime Primer" with a SaaS spin. Just check it out for fun also.)

Google, Microsoft, and Amazon Lead the SaaS Plunge

Bloglines and Technorati returned tons of results when searching for "Technology Stocks Fall". Microsoft, Amazon, and Google are at the centerfold of the technology world, so not explicitly searching for SaaS worked out fine in this case.

First, I found a good article about how Google, Microsoft, and Amazon tumbled today. The general downturn of the market will force IT spending down.

Investors sold tech on concerns that, barring a bailout for the financial sector, cutbacks in lending will cause companies to trim or delay orders on computers, software, networking gear, and other tech products.

Comment: A strong benefit of SaaS is cost savings for the IT buyer. Yet, I feel like this is a long-run scenario. If I am a small or medium business with 50 licenses of GenericCRM and it works fine, not great, but doable, then in an economic downturn I definitely do not and cannot want to switch to a SaaS version of Microsoft CRM until I have a decent cash flow.

SalesForce Hits 52 Week Low: The White Knight is Knocked Off His Horse

SalesForce is the White Knight of the SaaS industry. It's not the king, or the father (or grandfather), but the saving grace of the entire software sector. Why? Because SalesForce is an epicenter of SaaS vendors, revenue, and growth. Not a good sign when The White Knight Hits 52-Week Low (Thank you to Technorati for finding this).

SalesForce fell close to $6 and dropped to around $45.

SaaS Stocks Generally Underperforming in 2008

As bad as today was for the SaaS 20, the industry is generally just not doing so good this year. While looking at my Blogline feeds for SaaS, I noticed a recent post (from yesterday) titled Software as a Service: Painful 2008. According to this post, the SaaS stocks are down as a whole for the year and down 4.53% since last week. How much down for the year? A whopping 17%. Some lowlights:

Salary.com (SLRY), which specializes in compensation software, down nearly 65% this year
Omniture Inc. (OMTR), maker of online analytics software, down 38.93%
Taleo Corp. (TLEO), which specializes in on-demand HR software, down 35.36%
RightNow (RNOW), a SaaS CRM specialist, down nearly 23%
Salesforce.com (CRM), the poster child for SaaS, down nearly 20 percent
Kenexa Corp. (KNXA), an HR recruiting SaaS specialist, down 17.10%

Profits of SaaS companies are just not growing at the pace and consistency that Wall Street expects for technology's "up and coming" group. All I know is, I do not believe these stocks are recession-proof. Whoever wrote that article must have had too much coffee and confused with the date with January, 2000 when technology stocks were so amazing they would stay afloat by levitatation if the ground was removed beneath them.

Conclusion

It is a shame that SaaS stocks are not performing well, but it's all relative - if nobody is performing well, it's just about who is doing the least bad. Yet, the macro-picture is that SaaS is supposed to be one of the fastest growing industries in the world. Even data that has been released between January 17th and today supports that claim. If the fastest growing industry in the world is still not growing fast enough and sensitive to market shocks, then there is some serious problems occuring.

Summary of Research Methods

One goal of this blog post (besides disproving the January post on recession-immune SaaS) was to discover information via blog searching / blog tools. All of the information I found today was found and compiled on Technorati.com and Bloglines.com. Using these two tools together in a tandem is fantastic! Technorati is really helpful at finding new blog posts and RSS feeds to subscribe to while Bloglines helps you organize your feeds into categories and informs you when new posts were made.

Blogs posts in general are very useful when trying to find information on a topic but their only downside is a lot of blog posts are informal, subjective, and are not professionally written. Nevertheless, those attributes can lead to posts that otherwise would not appear in a newspaper or magazine because they may not be necessarily reporting on an story; rather, they are just talking about what they observe. Blog posts are typically part of a larger blog feed which is stored as an RSS Feed. RSS Feeds are .XML pages that store the crucial descriptive characteristics of a blog post. This information can then be put into an RSS Feeder that will automatically update itself with the latest posts.

BlogLines is an advanced RSS Feed reader in that it lets you organize, edit, and track the Feeds you are interested in and informs you of any new posts you have not read. I currently use BlogLines to track all the major blogs I read. The blogs I linked to in this post - Zoli's Blog, MSPMentor, Forbes, and BusinessWeek's Tech Blog - are all part of my BlogLines feeds. Check all of them out at my BlogRoll.

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