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.
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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.