Wednesday, 5 August 2009

SaaS winning the argument for StatPro

(By Philip Carnelley, Aug 2009, 21:00) At its interims briefing today, StatPro CEO Justin Wheatley declared that “SaaS is winning the argument”. The software analytics and data provider to the asset management industry has switched to selling its products only in hosted, software-as-a-service mode, a bold move. Overall, the company reported revenue up 19%, to £15.5m, although around half that increase was due to currency effects – over 75% of revenues are from overseas – and £1m came from last year’s Performa acquisition. Professional services revenues fell 30% – to £1.3m – but the strong recurring revenue model in the data and analytics areas more than compensated: over 90% of revenues are recurring, on multi-year licences, with 95% renewal rates. Adjusted operating profit margin rose 3pp to a healthy 23.5%, while adjusted PBT was up 63% to £3.2m. While the company decreased its headcount last year, it is now expanding its salesforce anticipating improving market conditions.

Like Fidessa, (see Fidessa tempers expectations) StatPro has historically rented its software rather than adopting the ‘upfront licence fee + support’ model. Therefore it is has already overcome one of the big challenges companies face moving to SaaS – transitioning to a periodic payment model. Today, 38 of its 230 customers – accounting for 15% of software revenues – take SaaS delivery and the company reports a pipeline of customers waiting to convert. CFO Andrew Fabian commented that “with SaaS, we are delivering a better service at a lower overall cost to ourselves and our customers”. This is another challenge faced by companies transitioning to SaaS delivery – maintenance of margins. The company expects margin expansion as a result of the moves to centralised infrastructure and simplified support arrangements, which would be commendable: historically, hosting and application management services have far lower margins than software provision.

We think the company faces an additional challenge when a new version of the platform is launched. “SaaS2”, as this is being called, is a multi-tenanted model. On the one hand this should make it even cheaper to provision. But the company aims to broaden its appeal to smaller companies and individual fund managers by making an entry level version available for some $1.2k pa, compared to around $60k for the full version. So cost-of-sale and delivery issues loom large. The company is also looking to establish additional hosting facilities to cope with expected increases in demand. However if it can increase sales significantly then even lower margins could still lead to higher absolute profit.

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