With all of the hype that still surrounds the social media and cloud computing spaces, putting the two together sounds a little like a hype supernova. To be sure, there is a lot of hype and hope with Jive Software (Nasdaq:JIVE), a stock that IPO'ed not all that long ago and now sits close to new lows. Although the valuation on this stock still looks pretty rich, it's not hard to see that Jive could become a hot property if it can prove that enterprise customers really are willing to spend money to facilitate workplace collaboration.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Can Jive Convince Customers to Pay?
Jive is the first company built around social business collaboration (enterprise social software) to go public, and it will be interesting to see what sort of business model that company can build. In a nutshell, Jive's products facilitate real-time interactive collaboration among workers on the same platform. The idea is that better collaboration increases revenue, lowers costs, accelerates product/project development and generally improves the quality and flow of work for a business. That's not exactly an unprecedented idea, but Jive seems to do it better than anybody else and both Gartner and Forrester have identified the company as a leader in the space.

The question is whether Jive can reap a premium from this. Jive's platform can cost $12 to $18 a month depending upon features, but the company is competing with companies like Microsoft (Nasdaq:MSFT) and IBM (NYSE:IBM), which are looking to incorporate collaboration capabilities as features into existing products. Likewise, other companies like Telligent, VMware (NYSE:VMW) and Salesforce.com (NYSE:CRM) have their own collaboration products as well.

Cloud computing may be an investible trend, and certainly this is a market worth fighting for - while the core collaboration market could be worth more than $8 billion, the total addressable market for Jive could be north of $20 billion when including adjacent markets like content application. With 17 million paid users on board, Jive already has nearly 10% share.

No, not Another Facebook
I don't know if it's laziness or just part of the hype machine, but contrary to what many have written, Jive is not really like the "next Facebook (Nasdaq:FB)." Facebook really isn't designed for collaboration and if people can actually facilitate getting work done through Facebook, it's as a side-effect and not an intended feature. What's more, Facebook has a vastly different model - in Facebook, the users are the product and the advertisers are the customer; with Jive, the company is the customer and the users are the users.

Build to the Buyout?
If enterprise collaboration really takes off as a category of its own, Jive is going to see ample competition. Not only do companies like Microsoft, IBM and Salesforce.com already offer competing options, it doesn't take a lot of imagination to see how companies like Facebook and Google (Nasdaq:GOOG) could look to take their consumer-oriented social platforms and port them over to the enterprise. Accordingly, I do wonder if Jive is going to find itself forced to spend ample dollars on client acquisition and retention and experience the same questionable margin leverage as other cloud software providers.

On the other hand, Jive may have some trademarks of a takeover target, and I wouldn't be even slightly surprised to see it get a bid from a larger rival. Companies like IBM, SAP (NYSE:SAP) or VMware could take a "if you can't beat them, buy them" attitude, while others like Oracle (Nasdaq:ORCL), Hewlett-Packard (NYSE:HPQ), Dell (Nasdaq:DELL) or Cisco (Nasdaq:CSCO) could all be logical acquirers.

The Bottom Line
Jive's debut has been a somewhat rocky one, as the stock sits nearly 50% below its high, the same results of the Facebook IPO debut. While revenue growth of over 50% and renewal rates above 90% both look good, the company did see some billings growth deceleration and it seems like macro conditions are leading to a longer sales cycle. Moreover, it looks like the market has cooled a bit on this sector for now.

It's hard to call Jive cheap with a forward EV/revenue of more than seven and similarly elevated metrics. That said, within its universe of fast-growing software names, it's not that dramatically overpriced and tech investors are well known for ignoring valuation when the growth is good enough. While this stock doesn't really work for me from a valuation perspective, investors who are comfortable with the ups and downs of momentum-driven tech investing might want to check this name out.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Investing

    Has Apple Finally Hit the Wall With the iPhone?

    We look at how the iPhone has sold over its brief existence and what that means for the future of the smartphone market.
  5. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  6. Investing

    The Top Businesses Nurtured By Y Combinator

    We look at the top startups that were incubated at Y Combinator, one of the world's most popular business incubator firms.
  7. Investing

    Is It Time To Bet On The iPad Again?

    Apple's focus on iPad has been fairly tepid these past few years. But, the iPad Pro was the centerpiece of the company's latest product announcements. Why?
  8. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  9. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  10. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  1. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  2. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  3. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  4. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  5. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  6. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!