Public Software Company Financial Performance: By Product Category

The lackluster growth rate is largely attributable to providers of legacy solutions to wireless carriers that have been adversely impacted by the likes of Apple, Google and others…

 

This excerpt is from our complimentary Q1 2012 Software Industry Financial Report which can be downloaded here:  http://www.softwareequity.com/research_reports.aspx

 

Median TTM revenue in six of our SEG Software Index product categories grew 20% or more in 1Q12 (Figure 10).  Security posted an impressive 26% TTM revenue growth rate, the highest among the seventeen product categories we track.  The category was led by VASCO (55.7% TTM revenue growth), Imperva (41.4%) and Fortinet (33.5%).  Business Intelligence, driven by demand for analytics in the era of Big Data, achieved a 24% TTM revenue growth rate.  Other hot product categories with TTM revenue growth above 20% included Healthcare (23%), Networking & Network Performance Management (21%), Vertically Focused software providers (20%), Billing & Service Management (20%) and Systems Management (20%).

Given the buzz around Mobile, it’s surprising to see the category finishing 1Q12 with a paltry 10.6% median TTM revenue growth rate.  The lackluster growth rate is largely attributable to providers of legacy solutions to wireless carriers that have been adversely impacted by the likes of Apple, Google and others that are beginning to dominate the mobile ecosystem.  These legacy mobile solution providers include Smith Micro (-55.7% TTM revenue growth), Access (-45.1%), Myriad Group (-35.3%), RealNetworks (-16.4%), Motricity (-8.8%), and Openwave (-1.6%).  Growth was particularly strong among the new wave of mobile gaming and mobile advertising providers, including Gree (133.0% TTM revenue growth), Millennial Media (116.8%), and Velti (62.7%).

Five software product categories posted TTM revenue growth rates below 10%: IT Conglomerates (8.0%), Storage, Data Management & Integration (7.8%), Development Platforms (7.7%), Gaming (5.6%) and Financial & Accounting (4.7%).

The IT Conglomerate category led all other product categories with a median EBITDA margin of 40.1%.  As the name implies, the category consists of the largest software providers in the world such as the aforementioned Oracle (42% EBITDA margin), Microsoft (42%) and SAP (37%).  Software providers vertically focused on the finance industry (Vertical – Finance) also posted stellar EBITDA margins of 36.6%, demonstrating strength from top to bottom, with every company generating EBITDA margins above 31.5%.

The product category with the lowest EBITDA margin was Mobile, closing 1Q12 at 5.2%.  Reflecting the wide ranging prospects of companies within this category, EBITDA margins vary drastically from one company to another.  Gree, an emerging provider of mobile social games, finished 1Q12 with EBITDA margins of 53.0%.  By contrast, Smith Micro, a legacy provider of phone tools to mobile OEMs and wireless carriers, finished 1Q12 with EBITDA margins of -68.2%.

 

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