IPO Spotlight: SuccessFactors Inc.

IPO Spotlight: SuccessFactors Inc.

	Published : Mon, 19 Nov 2007 16:37 By : Agencies Print this Story

NEW YORK (AP) - Though the initial public offering market quiets down some this week in anticipation of the Thanksgiving holiday, analysts contend SuccessFactors Inc.'s IPO could really shake things up and make some noise.

The San Mateo, Calif.-based company is hoping to lure investors with its position in the hot and growing market of on-demand software.

'The market right now loves online business models,' said Francis Gaskins, president of research company IPODesktop.com. 'You don't have inventory, you don't have receivables.'

SuccessFactors provides human-resources software to more than 1,400 customers in a variety of industries, with more than 2 million users around the world. Customers include American Airlines, Wachovia Corp., Lowe's Cos. and T-Mobile USA Inc.

The on-demand model is attractive for companies because it reduces the high, upfront cost of installing complex software. Instead, the software application is hosted by SuccessFactors and customers pay a fee to access the application over the Internet using a standard Web browser.

But the potential growth of the on-demand market might not be enough to buoy SuccessFactors' stock, analysts said.

'When (market) conditions become a little more challenging, investors gravitate to those companies that have solid fundamental growth stories and shy away from more riskier investments,' said Paul Bard, an analyst with Renaissance Capital's IPOHome.com. 'It's going to be very deal-specific.'

What worries analysts is the amount of money SuccessFactors is losing due to a large amount of money spent on sales and marketing efforts.

'(Their losses) are actually disproportionate to their sales, and that is not a good sign,' said Scott Sweet, managing director of research firm IPO Boutique.

For the nine months ended Sept. 30, SuccessFactors reported a loss of $49.2 million, compared with a loss of $22.9 million in the year-ago period. Revenue more than doubled to $44.1 million from $21.2 million in the first nine months of 2006.

'They think it's a big growth market, and they want to dominate. That's why they spend so much on sales and marketing,' Gaskins said. 'It may pay off in this business if they can establish themselves as a leader in a fragmented market.'

The company will do well if it can convince investors that their growth is sustainable and that they can eventually earn money, Bard said, but the jury is still out on whether that's possible.

'SuccessFactors is either going to make it or blow it,' Gaskins said. 'People are going to watch that company very closely.'

SuccessFactors expects the offering of 10.8 million shares to price between $8 and $10 per share. Assuming an offering price of $9, the company anticipates proceeds of about $80.9 million.

SuccessFactors plans to use the proceeds to repay in full its outstanding debt, which was about $20.7 million as of Sept. 30. Remaining proceeds will be used for general corporate purposes and working capital, including potential investments in technologies, software or assets, and possible acquisitions.

Morgan Stanley; Goldman, Sachs & Co.; JPMorgan; JMP Securities; and Pacific Crest Securities are underwriting the offering.

The company plans to list its shares on the New York Stock Exchange Arca market under the symbol 'SFX.'