SuccessFactors Dressed for an IPO

On its IPO last week, SuccessFactors (Nasdaq: SFSF  ) certainly lived up to its name. The company's stock price spiked 12% to $12.68 from its IPO price of $10. Still, there could be some turbulence ahead for investors.

SuccessFactors develops Web-based software to help companies manage recruiting, employee learning, compensation, and succession planning. There are more than 1,400 customers and more than 2 million users. Some of the customers include biggies like ConAgra Foods (NYSE: CAG  ) , Goldman Sachs (NYSE: GS  ) , and Symantec (Nasdaq: SYMC  ) .

For the first nine months of this year, SuccessFactors' revenue has surged 110% to $44.1 million. It helps that the company has strong strategic relationships, such as with IBM (NYSE: IBM  ) and Mercer. SuccessFactors has also built a solid technology foundation. For example, the company has released major enhancements to its products every month for the past six years. However, SuccessFactors has ramped its expenses with abandon. In fact, the company spends 111% of its revenue on sales and marketing. The downside is that the net loss for this year is a stunning $49.1 million.

Keep in mind that SuccessFactors' key competitors, Kenexa (Nasdaq: KNXA  ) and Taleo (Nasdaq: TLEO  ) , are profitable. They are also selling at multiples of two to five times revenue, respectively. As for SuccessFactors, it is trading at about 10 times revenue.

So while SuccessFactors has a solid product and is growing rapidly, the stock is far from cheap. And the company is in an emerging technology sector, which can be volatile. Just look at the 40% drop in Kenexa's stock price because of its soft Q3 results. In other words, Foolish investors may want to hold off on SuccessFactors for now.

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