Among SEG’s three tracking indices, the market performance of public companies comprising our SaaS Index far outshone their perpetual software and Internet counterparts.
This excerpt is from our complimentary Q3 2012 Software Industry Financial Report which can be downloaded here: https://softwareequity.com/research_reports.aspx
Following sharp declines in the second quarter, each of the major stock indices advanced by the end of the third quarter and chalked up positive year-to-date returns. The tech heavy NASDAQ index closed the quarter up 19.6% YTD, 7.0% higher than at the close of Q2, while the S&P 500 and DOW posted less impressive YTD gains of 14.6% and 10.0%, respectively, in 3Q12 (Figure 3).
Among SEG’s three tracking indices, the market performance of public companies comprising our SaaS Index far outshone their perpetual software and Internet counterparts. Investors resonated with the accelerating growth and growing enterprise adoption of SaaS, pushing the stock prices of public SaaS providers up by a median 27.5% YTD by the close of Q3. Five SaaS superstars posted YTD stock returns in excess of 70%: Ellie Mae (381.9%), Demandware (98.4%), Medidata Solutions (90.8%), Athenahealth (86.8%) and Kenexa (71.6%).
The stock performance of SEG’s Internet Index, which racked up the highest median increase (19.3%) of our three tracking indices in 1Q12 before plummeting to 4.3% in Q2, grew only 7.3% in Q3, the lowest third quarter stock return among our tracking indices. Chalk much of that up to continuing erosion of investor confidence in Interent stocks, thanks to disappointing financial results and forecasts by such high flyers as Facebook, Groupon, Zynga, Google and others.
The SEG Software Index median stock performance finished Q3 up 14.6%, lower than the SEG SaaS Index (27.5%) and higher than the SEG Internet Index (7.3%). The relative underperformance compared to the SEG SaaS Index is a clear sign of investor preference for SaaS based companies in the current market. The surprisingly outperformance relative to the SEG Internet Index illustrates how far investor confidence has fallen for public Internet companies relative to other software sectors.