The tipping point for SaaS probably happened in 2012.
Software-as-a-Service wasn’t new, noted rock-star venture capitalist Marc Andreessen at the time, but it was finally ready for prime time when big corporate customers started to adopt it en masse.
“You’ve had Workday (with its IPO), and Salesforce.com doing extremely well,” he said at GE’s Industrial Internet Conference that year, adding: “Big corporate customers are starting to tip on SaaS. The customers in the pipeline (of these SaaS companies) are the who’s who.”
Oppenheimer Analyst Brian Schwartz says the SaaS model is simply one of the most disruptive things to come along in a long time.
“We happen to think that that is actually probably one of the biggest model transformations that I’ve seen in my career here in covering stock here for more than a dozen years, he said recently. “So we think software as a service in itself is highly disruptive. It’s a complete business model transformation, and it also fits appropriately the type of IT spending trends that we are finding in our research today.
The trend may have been less evident in Canada at the time, but in 2013, SaaS took off. Canadian analyst Ron Shuttleworth’s top picks returned a whopping 171% in 2013, and leaned heavily on SaaS focused businesses.
So Canada may have been late to the game, but some companies appear intent on making up for lost time. We offer ten Canadian SaaS stocks worth a look, ranked by market capitalization.
1. Descartes Systems Group (TSX:DSG)
Art Mesher is no longer at the helm, but Waterloo’s Descartes Systems Group remains a model of SaaS efficiency. Last September, the company was named by ARC Advisory Group as a leading provider of software-as-a-service (SaaS)-based transportation management systems.
“The strength of the Descartes solution set is that it is a broad, end-to-end vision of logistics based on an electronic platform supporting planning and execution, MRM, and global trade compliance, said said Steve Banker, Service Director, Supply Chain Management at ARC Advisory Group.
Mesher, who was succeeded by former Chief Commercial Officer Ed Ryan as CEO in late November, was typically blunt about the way Descartes sells. At a conference in Toronto last year, he summed up his strategy. “Don’t make me spend nine months making me try to sell you our product. Just try it. If you don’t like it, don’t pay us.”
2. Redknee (TSX:RKN)
After the acquisition of certain assets from Nokia Siemens Networks late in 2012, shares of Redknee took flight in 2013, but the company had been building business momentum for years. Redknee’s real-time converged billing solution has already been benchmarked to support a quarter of a billion subscribers. Its billing solutions run the gamut from the customer side to helping service providers better monitor, understand and monetize their subscriber base. These customers, of course, are being won on the premise that Redknee provides a solution that is fast to market, low risk and real time, all hallmarks of SaaS.
3. Mitel Networks (TSX:MNW)
One of the frustrations of SaaS for companies with large numbers of legacy customers is that there is a degree to which you can only move as fast as those clients want to. But Ottawa-based communications provider Mitel, which enjoyed a stellar performance in 2013, has done a great job of moving even the most staid customers to the cloud in half-measures. had offered SaaS under the “Mitel AnyWare” brand for years. A partnership with Sprint, announced in March, extended its SaaS offerings considerably.
4. Points International (TSX:PTS)
Toronto-based Points International lives at the corner of technology and loyalty programs, which these days is a good place to be. Points International manages the back end of loyalty currencies, frequent flyer miles, hotel points, retailer rewards and credit card points. The company has more than fifty partners worldwide including Delta, BestBuy, Starbucks and PayPal. Points has grown its revenue from $30 million in 2007 to $139.5-million fiscal 2012. The company’s SaaS offerings allow ecommerce merchants to instantly add loyalty solutions to their online stores.
5. Solium Capital (TSX:SUM)
While solving the increasingly complex tangle that is corporate equity share plans, Solium Capital has been a top performer by growing its revenue from just over $11-million in 2008 to more than $50-million in fiscal 2012. PI analyst Pardeep Sangha expects it will continue. He is forecasting 35% revenue growth for the current fiscal 2013, 16% for 2014, and a further 13% gain in fiscal 2015 to bring that year’s revenue to $88.8-million. He expects EBITDA to climb from $17.4-million in fiscal 2013 to $20.2-million the following year and $23-million in 2015. The company today describes itself as “the leading global provider of software-as-a-service for equity administration, financial reporting and compliance.”
6. Absolute Software (TSX:ABT)
Absolute joins Descartes as another company with an unexpected change at the top. In December, John Livingston left the company after nearly two decades. He leaves a company that has successfully transitioned from servicing the waning PC market to a boisterous mobile device business. Analyst Blair Abernethy last summer said Absolute’s real upside comes from its increasing leverage to mobile devices such as the iPad.
Last June, Absolute acquired data security and data loss prevention provider Palisades Systems, a company positioned by Gartner in the niche quadrant of the 2013 Magic Quadrant for Content-Aware Data Loss Prevention. The company feels the solution will work well with its own government and risk compliance application Computrace. “This acquisition dovetails straight into our government risk compliance and data security messaging for Computrace, and we really believe that as we take this technology and incorporate it into Computrace to deliver a software-as-a-service (SaaS), cloud-managed endpoint DLP platform, it will be very exciting for our customers,” Absolute COO Rob Chase told eWeek.
7. Halogen Software (TSX:HGN)
The environment around SaaS, and a renewed interest in tech on Bay Street, resulted in the reportedly vastly oversubscribed IPO of Ottawa’s Halogen Software last May. Halogen, which was founded more than a decade ago, sells SaaS products used to automate employee performance appraisals and manage aspects of worklife such as recruitment and succession.
A recent report on the space from Forrester Research gave Halogen the highest score possible. The study, called “The Forrester Wave™: Talent Management, Q1 2013” by gave Halogen the highest ranking of all the vendors evaluated.
“Halogen continues as a leader in customer service and support and customers view Halogen as a partner,” said Forrester senior analyst Claire Schooley. “The [company’s] customer focus is midmarket, but Halogen has a growing number of global customers.”
8. BSM Technologies (TSXV:GPS)
Last September, analyst Ron Shuttleworth described BSM Technologies as a “Software-as-a-Service turnaround story worth paying attention to”. Since then, the company’s stock has continued a mostly uninterrupted steady climb that began last April. Shuttleworth said BSM, which manages mobile logistics assets across four verticals (energy, construction, utilities and rail) is showing “emerging dominance” in the rail segment of its business. He thinks the company can create earnings leverage through a recurring revenue business model in market niches that are tightly defined. He notes that BSM has already landed four of the six Class One railroads in North America, yet at a deployment completion rate of just 15% so far, there is still about $70-million in revenue left in the rollout of that vertical alone.
9. Symbility Solutions (TSXV:SY)
Symbility Solutions, a fast growing insurance claims SaaS vendor, is a technology disruptor in the global Policy & Claims claims market, and is likely a prime acquisition target in the insurance space, says Cormark analyst Richard Tse. The company’s 2012 client win of Farmers Insurance, the third largest property and casualty company in the US, was perhaps the first major name the company landed, but was soon followed by a contract win with Lloyds Banking Group, one of the largest domestic property insurers in the United Kingdom. Lloyds will integrate Symbility’s claims and mobile scoping tool into its organization.
10. Serenic (TSXV:SER)
With a current market cap of just over $3-million (but revenue of more than $12-million) Edmonton’s Serenic is the smallest player on the list, but is nonetheless tackling a very large market. Serenic makes software that manages the tangle of fund accounting for global NGOs, nonprofits and public sector users such as Medair. A cloud-based version of the company’s highly regarded flagship accounting solution, Navigator, is hosted on Microsoft Windows Azure and offers a solution that can be accessed anywhere, anytime, and on any device, important when the field work of many organizations can be spread across dozens of countries.
At publication date, Cantech Editor Nick Waddell owns shares of Serenic and his company, Cantech Communications, is engaged to provide investor relations services to the company. Serenic is a sponsor of Cantech Letter.
Cantech Letter has published this article for information purposes only. The information contained herein does not constitute investment advice or advocate the purchase or sale of any of the securities mentioned.
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