By US Daily Review Staff.
The National Inflation Association predicts that enterprise social networking will revolutionize the workplace beginning in 2012 and change forever the way the world gets work done. Over the past few years, social networks like Facebook and Twitter changed the lives of consumers and how they communicate with their friends and families. Facebook started out just for college students and now those college students are finally entering the workplace where they are demanding that their employers adopt enterprise social networking platforms.
Enterprise social networks are kind of like Facebook for the workplace, but without the socializing. Enterprise social networks are meant to result in employees working together better as a team and getting their work done more efficiently. After a business deploys their own enterprise social network, no longer are their employees limited by their job title. Employees can display on their profile pages all of their areas of expertise and when a co-worker needs help from somebody with a certain skill, they can easily search to find what co-workers have that skill. Employees can invite the co-workers of their choice to join a group to work on a specific project. Once they accept and join that group, they can instantly become familiar and knowledgeable about the project being worked on by reading a project description, viewing project milestones, and seeing what co-workers are involved and the exact work that each employee is contributing.
Facebook is expected to have in the third week of May what is rapidly becoming the most eagerly anticipated IPO in Wall Street history. There are already dozens of new articles being written about the Facebook IPO on a daily basis. The amount of media attention being paid to the Facebook IPO will only increase on a weekly basis up until Facebook finally begins trading. Facebook is expected to raise $10 billion and start trading with a market cap of $100 billion, which will be about 25 times Facebook’s 2011 revenues of approximately $4 billion.
Wall Street analysts will justify Facebook’s rich valuation of 25 times sales by saying they are growing revenues by over 100% each year. However, Facebook has already reached market penetration in the U.S. of about 50%, which is most likely near a peak. It is unlikely that Facebook will reach the same market penetration in European countries and it has been banned inChina, which will severely limit their future user growth. NIA estimates that Facebook will probably only grow revenues by 20% to 40% annually for the next three years, with annual user growth of only 10% to 30%.
The enterprise social networking industry was only worth $600 million in 2011. However, most large U.S. corporations are now planning to deploy enterprise social networks within the next year or two. This industry is likely to grow 61% annually and become a $6.4 billion market by 2016.
While Facebook’s biggest growth is behind it and investors will likely overpay for shares of Facebook stock, the enterprise social networking industry is still in its infancy. NIA believes that the enterprise social networking companies with top-tier solutions will experience growth over the next four years that is similar to Facebook’s growth over the last four years.
In the world of consumer social networking, Facebook is the dominant company because everybody wants to be where their friends and family are. In the world of enterprise social networking, we believe there will be 5 to 10 leading social platform providers. We don’t expect any one enterprise social company to receive more than a 20% market share.
The leading company in the enterprise social networking industry today is Jive Software Inc. Jive went public in December of 2011 in one of the hottest IPOs of the year. Demand for Jive shares was off the charts. Not only did Jive start trading at $12 per share, which was above the $8 to $10 pricing range, but Jive sold 15% more shares to the public than they planned. This resulted in Jive raising $161.3 million or 38% more than the $117 million they planned to raise.
Jive closed January 17th at $14.65 per share and has 59.07 million shares outstanding, giving it a market cap of $865.32 million. Based on the cash and debt Jive had before its IPO and adding in the cash Jive raised in its IPO, Jive’s actual enterprise social networking platform and business is currently receiving a value of $664.33 million. Jive’s revenues in the trailing twelve months were only $69.44 million and Jive reported a huge net loss of $44.9 million.
Based on the valuation Jive is now receiving, it is obvious that revenues and profits don’t matter at this time when valuing companies that offer enterprise social networking platforms. For at least the next year or two, companies in this space will be valued based on the quality of their platform including its depth of functionality and ease of use, unique features of their platform that make it stand out from competing platforms, cash available for marketing and developing new unique features, experience of management, and customer growth.
There is clearly a lot of money on the sidelines looking to invest into this space. A private company in this space with a good quality platform Lithium Technologies just received a venture capital investment of $53.4 million, which will allow Lithium to compete directly with Jive. Lithium’s best strength is their powerful social media analytics engine they received when they acquired Scout Labs for approximately $25 million.
Microsoft is in this space with SharePoint 2010, but SharePoint was originally never intended to be used for enterprise social networking and therefore is lacking in terms of functionality and features that businesses crave. A private company NewsGator has developed a very good product for improving the usefulness of Microsoft SharePoint 2010 called Social Sites. It should be interesting to see if Microsoft is able to significantly improve SharePoint and if they will ever attempt to acquire NewsGator.
Another software giant IBM has developed a much better solution than Microsoft called IBM Connections. While Microsoft has a three year release schedule for SharePoint that will keep their product out of date, IBM intends to release new versions of IBM Connections on an annual basis. Jive has a major advantage over both IBM and Microsoft where they are constantly releasing new versions of their platform on a regular basis, including new integration with Microsoft Office that is a result of Jive’s recent buyout of OffiSync for approximately $30 million.
There has been a lot of consolidation taking place in this space and NIA expects it to accelerate in 2012. Jive’s purchase price for OffiSync of $30 million and Lithium’s purchase price of $25 million for Scout Labs were the prices these companies paid to basically add one unique feature that differentiates themselves from the competition. $25-$30 million is just about the lowest companies in this space have been selling for and on every occasion $25-$30 million has only been enough to basically acquire one unique feature to improve one’s social networking platform. It has proven to be impossible to acquire an enterprise social networking platform for anywhere near that cheap.
A private company Telligent Systems Inc. has developed a very solid enterprise social platform called Telligent Enterprise. Instead of focusing on developing unique features, Telligent has become one of the leaders when it comes to integrating enterprise social networks with the existing technology of large corporations. Telligent doesn’t have the largest quantity of customers but it has some of the largest customers in the world. Telligent recently expanded by acquiring Leverage Software at an undisclosed price.
NIA’s largest position at this time is in BroadVision Inc. BroadVision is one of only two publicly traded pure enterprise social plays along with Jive. BroadVision has been under accumulation in recent weeks and we believe some very smart institutions are positioning themselves in BroadVision stock before the Facebook IPO and the massive boom that is ahead for this space.
BroadVision has developed Clearvale, which we consider to be one of the top-tier enterprise social solutions that will lead the industry along with Jive. BroadVision offers Clearvale Express, a free version for businesses to try out their technology before moving on to Clearvale Enterprise, which is BroadVision’s fully featured enterprise social network suite.
Clearvale Enterprise has just about all of the functions that competing enterprise social platforms do, but Clearvale is the only solution in the industry that allows businesses to create separate social networks for their employees, partners, and customers, while managing them together as a whole in one social enterprise ecosystem. Clearvale makes it easy for businesses to choose what networks each user is allowed to access so that a conversation between employees can seamlessly flow between networks. Clearvale can easily be setup so that customers can only see the postings of employees with solutions to their problems on the customer network and not the inner discussion taking place between co-workers who are trying to figure out solutions to the issues raised by customers.
BroadVision closed January 17th at $21.76 per share and has 4.515 million shares outstanding, giving it a market cap of only$98.25 million. BroadVision has an absolutely enormous cash position of $56.79 million and no debt, which puts them in a good position to become a major competitive threat to Jive. If you subtract BroadVision’s cash position from its market cap, the company has an enterprise value of only $41.46 million.
BroadVision still offers a few old products that they have been shifting away from, but the company is now investing solely into building Clearvale into the leading platform in the industry, and is no longer spending on their old products. However, we estimate BroadVision’s old products like BroadVision K2 and BroadVision QuickSilver to conservatively still have a value of about $15 million. Therefore, the market is currently valuing Clearvale at a shockingly low $26.46 million.
As we just went over, $26.46 million is barely enough to acquire one new feature to add to an enterprise social platform. A company like Jive that has a top-tier enterprise social platform similar to Clearvale is receiving a valuation for their platform alone at $664.33 million. We consider BroadVision to be the most undervalued company in the industry with Clearvale receiving a valuation that is only 1/25 or less than 4% of Jive’s platform valuation.
There is another publicly traded company with an enterprise social networking platform called Saba Software. Saba is mainly an e-learning company and Saba’s main focus is by far their Enterprise Learning Suite, which is used by hundreds of companies to quickly teach their employees the skills and knowledge necessary to perform their job.
Saba has developed their own enterprise social platform Saba Social, but we consider it to be a low-tier solution. It has been receiving very disappointing reviews and offers nothing unique, while lacking many of the critical features that make the top-tier platforms in this industry like Jive so valuable.
Saba has 29.78 million shares outstanding, giving it a market cap of $294.28 million. Saba only has $15.05 million in cash with debt of $870k, equaling a net cash position of $14.18 million. Saba won’t have the financial resources needed to compete with Jive nearly as aggressively as BroadVision, being that BroadVision has quadruple the amount of cash that Saba has.
In 2010 before the investment community realized that a huge boom is ahead for this space, Saba’s share price was in a very tight trading range of $4 to $6, and averaged the year trading for about $5 per year. Over the past year, Saba’s share price has increased to its closing price on January 17th of $9.88. NIA very strongly believes that Saba’s increase from $5 to $9.88 for a market cap increase of $145.33 million, is directly attributed to institutional investors accumulating Saba to gain exposure to the enterprise social industry before the huge boom begins this year. If you compare Saba’s one-month chart to a one-month chart of BroadVision, it appears very likely that the same institutions are accumulating both companies, but we believe BroadVision has by far the most upside potential.
Therefore, NIA believes the market is valuing Saba’s low-tier enterprise social platform at $145.33 million compared to Jive receiving a valuation for their top-tier enterprise social platform of $664.33 million. In NIA’s opinion, the private enterprise social companies we just mentioned deserve valuations for their platforms in between these two numbers.
We believe BroadVision’s Clearvale deserves a valuation closer to Jive than Saba Social, but if we value BroadVision’s Clearvale at just Saba Social’s valuation of $145.33 million, combined with BroadVision’s cash position of $56.79 million and an estimated value for their old products of $15 million, BroadVision would trade at a market cap of $217.12 million and a share price of $48.
The organization asked USDR to provide the following legal disclaimer: “NIA owns 151,900 shares of BroadVision that it purchased at an average price of $9.2639 per share. NIA agreed to a 60 day holding period on its initial position of 122,000 shares at the time of its original December 12th, 2011, profile of the company but intends to sell its shares at some point in the future after the date of February 12th, 2012. NIA intends to sell its additional 29,900 shares of BroadVision in the future and can sell them at any time. NIA’s co-founders have also been referred business in the past from somebody who has filed as a large BroadVision shareholder. NIA also reserves the right to accumulate additional shares of BroadVision at any time. NIA’s report is intended for informational purposes only and does not provide investment advice. Neither NIA nor its co-founders are investment advisors or broker/dealers. Past performance is not an indicator of future returns. NIA’s stock suggestions are not a solicitation or recommendation to buy or sell any security. Never make investment decisions based on anything NIA says. Do not rely on information from NIA to make investment decisions. Only use the information contained in NIA’s report as a starting point for you to conduct your own research and make your own investment decisions. NIA does not guarantee the accuracy of information in its report. Stock market investing is extremely risky. NIA’s co-founders may have previously discussed some companies in other media outlets.”