Yammering to Invest in Jive Software

The partnership with Cisco Systems provides the potential for the investment thesis in Jive Software to finally develop.

Jul 17, 2014 at 10:00AM

The recent collaboration deal with Cisco Systems (NASDAQ:CSCO) sparks an interest in investing in Jive Software (NASDAQ:JIVE) again. The social business software provider offered an interesting investment concept when it came public back at the end of 2011, yet the company hasn't been able to match the success of the consumer social media stocks.

The software provider is focused on the social business platforms of portals, social intranets, and external communities that allow employees and customers to better collaborate and engage. Unfortunately, Jive Software has yet to hit the tipping point, with revenue growth only clocking in at 21% in the first quarter.

The social software provider competes with numerous other services, including the Yammer product purchased by Microsoft and Chatter created by salesforce.com, Inc (NYSE:CRM). The recent expansion of the collaboration deal with Cisco provides hope that Jive will finally gain the scale needed to effectively compete in the market.

First-quarter results
In the first quarter, the headline revenue numbers were much better than the more important billings totals. Total billings, which is revenue plus the change in short- and long-term deferred revenue, was $39.8 million, an increase of only 4% over the prior year period. Jive did improve the gross margins by 300 basis points, but the market really wants to see the company grow billings substantially to grab market share and become a dominant player in the market.

Typical of a software firm that collects for services in advance, the company had positive operating cash flow despite a reported net loss of $6.3 million.

A couple of key stats for the quarter include a 110% revenue retention rate for customers who spend over $50,000. On the flip side, revenue growth has stalled because of the lack of new customers -- that key figure only grew 7.2% to reach 890 at the end of the first quarter. Based on the above stats, analysts forecast revenue growth not even reaching 20% for the next couple of years.

Cisco partnership
The deal involves combining Jive's enterprise collaboration platform with Cisco's real-time technologies like WebEx and Jabber. The resulting product provides a complete communication and collaboration offering, making it possible for users of this technology to offer a seamless experience for their employees, customers, and partners.

The Cisco partnership is meaningful to Jive, as it is the first time other sales reps are selling the Jive product. Notable for Cisco, the company decided to discontinue its WebEx Social product in order to sell the combined solution with Jive.

For the last fiscal year, Cisco's collaboration business, which included WebEx, declined 5.7% to slightly below $4 billion in revenue in the last fiscal year. Based on those stats, it is clear Cisco needs to make a move to improve the product offering.

With the partnership just rolling out at the start of May, Jive doesn't expect any meaningful revenue during the current year. The downside of a new sales force is that need to train them to understand the new product offering.

The partnership with a large organization like Cisco helps Jive compete against salesforce.com, which has total revenue approaching $5 billion and a market cap of $33 billion. Though Chatter is a small product, it has a large corporation backing it. The expanded sales force from Cisco will help it compete against the mega organization salesfore.com has created.

Bottom line
With the enterprise value of Jive Software sitting at $440 million considering the $139 million cash balance, the stock is appealing now that the company has an important partnership. The previous inability to get a meaningful amount of executives from large corporations to transition to the social business software from the small provider should be greatly improved with a giant in networking and collaboration segment like Cisco involved.

Now, a few months into the partnership, investors will need to key into the prospects presented in the upcoming second-quarter conference call. The deal won't involve any near-term revenue, but signs of progress integrating with Cisco will help the stock going forward.

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Mark Holder has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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