High Times at Taleo

While it's obvious that (NYSE: CRM  ) is the No. 1 independent on-demand software operator, can you name the No. 2 player? It's Taleo (Nasdaq: TLEO  ) . It may not have much name recognition, but the company has been delighting shareholders and growing its business at a healthy clip. Despite a rough market on Friday, the company's shares were able to increase 4.76% and hit a 52-week high on news of its fiscal Q2 results.

Taleo builds Web-based software that helps companies manage recruiting, resumes, employee screening, and performance management. The company has marquee clients like Facebook, Bank of America (NYSE: BAC  ) , Procter & Gamble (NYSE: PG  ) , and Citigroup (NYSE: C  ) . Even The Motley Fool is a customer.

Q2 revenues for Taleo came in at $31 million, which was a 32% increase for the past year and up 8% from Q1. Revenue growth is attributable to a 34% increase in application revenue and also due to 188 new customers in Q2. Some of these new customers include companies like Blackrock (NYSE: BLK  ) and Paychex.

Operating income swung from negative $2.5 million to approximately positive $500,000. However, the net loss of $1.8 million was primarily due to a non-cash income tax reserve expense of $2.9 million. Taleo's cash flows from operations increased by 19% for the first half of the year as compared to last year's numbers.

As I mentioned in a recent piece for The Motley Fool, Taleo was in the midst of several key product launches, such as the Enterprise Edition 7.5. Just like, Taleo is focused on gaining market share. It already looks like things are revving nicely and the company is making inroads with small-and-medium size customers (SMB). Taleo recently established an SMB unit and added 167 customers in the quarter. In all, there are more than 900 SMB customers, with examples like Joie de Vivre Hospitality and MySQL.

This is critical, as the competitive environment has intensified lately. SuccessFactors has filed to go public and Workstream has secured $20 million in financing. If anything, it's a sign that investors see lots of potential in the space.

But keep in mind that Taleo has a big advantage: a highly scalable infrastructure that currently handles more than one million users. That's not easy to develop, but it certainly helps to get new customers -- and keep existing ones. So while Taleo may not have the name recognition of, I think we'll be hearing a lot more from this company as it continues to deliver what investors want.

For further Foolishness:

Bank of America is an Income Investor selection. 

Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 4,156 out of 31,360 participants in Motley Fool CAPS.

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