IPO Invasion of the On-Demand Operators

On-demand software -- delivered via the Web, rather than being installed on individual computers -- has enjoyed a buzz-filled week so far. Business Objects (NYSE: BOBJ  ) and SAP (NYSE: SAP  ) have launched new offerings, and the gigantic annual conference from Salesforce.com (NYSE: CRM  ) is fast approaching. Meanwhile, these firms' momentum is about to spread into the IPO market, providing investors more opportunities to participate in this latest tech boom.

According to data from IPOHome.com, six on-demand software companies are prepping for public offerings:

Company

Background

Ticker

2006 Revenue Growth Rate

SEC Filing

Varolii

Interactive customer communications solutions

(Nasdaq: VRLI  )

71%

Filing

Netsuite

Enterprise resource planning (ERP) services for small and medium-sized businesses

(Nasdaq: NETS  )

85%

Filing

athenahealth

Management services for physician practices.

(Nasdaq: ATHN  )

41%

Filing

Convio

Management of nonprofit organizations

(Nasdaq: CNVO  )

62%

Filing

MedAssets

Improves the operating margins and cash flow for hospitals and health systems

(Nasdaq: MDAS  )

80%

Filing

SuccessFactors

Performance and talent management

(NYSE: SFX  )

150%

Filing

Interestingly enough, all of these companies are losing money (on a GAAP basis, anyway). But that's not necessarily a bad thing. After all, these companies are growing at breakneck speed, each trying to capture its respective category. Now is certainly not the time to grab profits.

If you read through the IPO filings, you'll also notice some key themes. Compared to traditional software, on-demand platforms tend to have lower up-front costs, easier installation, and less ongoing maintenance. They also require a smaller investment in hardware and data centers.

According to an IDC study, the global market for on-demand enterprise software was about $4 billion in 2006, and it's expected to grow to $14.5 billion in 2011. That should leave abundant room for a variety of dominant companies in the space. Which IPOs should Fools keep an eye on? I'd focus on those that target large markets and have achieved critical mass in revenue -- say, a $50 million run rate.

Under those criteria, NetSuite would fit the bill. The company provides enterprise resource planning software, which helps firms with duties like payroll and HR -- core functions that usually require complex technologies. NetSuite has been building its offerings since the late 1990s, amassing more than 5,300 customers along the way. Intriguingly, the company's majority shareholder is Larry Ellison, co-founder and CEO of mighty Oracle (Nasdaq: ORCL  ) .

In addition, I think Fools should keep an eye on athenahealth, which helps physicians' offices improve reimbursements. Its IPO is expected to hit the markets this week, and if it goes well, it should pave the way for its fellow offerings. If Wall Street's behaving like it usually does, that should also mean we'll see more such IPOs on the way.

Further Foolishness, because you demanded it:


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 537091, ~/Articles/ArticleHandler.aspx, 4/20/2014 10:37:58 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 2.54 0.14%
NASD 4,095.52 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

4/17/2014 4:00 PM
CRM $56.10 Up +0.12 +0.21%
Salesforce.com CAPS Rating: *
ORCL $40.08 Down -0.05 -0.12%
Oracle Corp. CAPS Rating: ****

Advertisement