High-growth software companies continue to significantly outpace the general market and other software indices. Demand for new software tools that enable cloud, social, mobile and data analytics are driving growth as well as M&A activity and venture investments in the sector. Financial results were mixed for the group we analysed as they represent a spectrum of business models from pure SaaS to a combination of on-premise and subscription, as well as pure software to integrated software and hardware offerings.
The software industry received the highest level of venture capital funding of all industries, despite dropping 7% from the prior quarter to US$2.1bn in Q2'13. This marked the fifth consecutive quarter of more than US$2bn invested in software. The Software industry also registered the most deals in Q2'13; however, this represented a 6% decrease from the 345 rounds completed in Q1’13.1
China’s software market is expected to grow to US$13.1bn by 2017, at a compound annual growth rate (CAGR) of 11.3%. According to the IDC Asia/Pacific Semi-Annual Software Tracker 2H12, the market reached US$7.64bn in 2012. IDC expects the entire enterprise application software market to grow at a CAGR of 12.5% in the next five years on the back of fast-growing software submarkets including human resource management (5-year CAGR of 18.9%), performance management and risk control (5-year CAGR of 15.2%), customer relationship management (5-year CAGR of 14.2%) and supply chain management (5-year CAGR of 13.8%).2
As the initial resistance to public cloud has begun to subside and customers are beginning to realize its efficiencies as the solutions mature, Gartner predicts end-user spending on public cloud services to grow 18% in 2013 reaching US$131bn. By 2015, Gartner predicts the public cloud services market to exceed US$180bn.3
Adobe announced it entered into a definitive agreement to acquire privately held Neolane for approximately US$600mn in cash. The acquisition of Neolane brings critical cross-channel campaign management capabilities to the Adobe Marketing Cloud. Neolane will become a sixth solution, complementing the existing Analytics, Target, Social, Experience Manager and Media Optimizer offerings.
To focus more sharply on its core businesses, Intuit Inc. has divested its Financial Services business and sold the Intuit Health Group. The divestiture of Intuit Financial Services (IFS) reflects Intuit's strong commitment to intensify its focus on tax products and services for small businesses and consumers.
SAP announced plans to acquire Hybris. The acquisition will enable SAP to deliver the next-generation ecommerce platform based on the latest technology, with the choice of on-premise or on-demand (SaaS) deployment. The combination of industry-leading enterprise solutions from SAP with the agile omni-channel commerce solutions of Hybris will offer enhanced data access and faster analyses, enabling enterprises to optimize margins and customer loyalty. In addition, SAP acquired Ticket-Web, KMS Software Company, Camilion Solutions and SmartOps during the quarter.
In a step towards achieving its goal to divest non-core businesses in order to pursue enterprise-focused cloud infrastructure, VMware sold off Sliderocket (an online presentation platform), Wavemaker (an open source software development platform) and Zimbra (a groupware email server and web client). The company plans to focus on three strategic growth priorities – defined data center, hybrid cloud and end-user computing.
Software companies in the analysis reported mixed results this quarter. Adobe, Intuit and Symantec reported a decline in profits while Microsoft, Oracle, SAP and VMware registered growth. Microsoft reported a profit of US$5bn in Q2'13 versus a loss of US$492mn in Q2'12. This was due to the absence of a goodwill impairment charge of US$6bn which the company incurred in Q2'12. Intuit reported a loss of US$16mn this quarter driven by higher operating expenses, primarily selling and marketing expenses. VMware reported YoY growth of 27% driven by higher revenues and a pre-tax gain from divestitures.