The hype in the social/cloud computing sector still goes unnoticed by many. In the past 3 months, a series of technology IPOs has taken place, allowing investors to play and cash in on the up and coming sector. These under the radar IPOs have just recently popped up and have given investors huge gains since going public, and continue to do so. The new services and technology that these companies have to offer is the way of the next decade and will help improve every business in any industry out there. While all of the recent companies that have IPO'd in this up and coming, Salesforce-esque, sector are small caps, the market opportunity is so large that these companies may grow in size rapidly as they blow away investor expectations. Many are still unfamiliar with the products and services that these companies have to offer and the profit potential that they have. Investors could miss out on massive gains if they overlook some of these names.
Starting with Jive (NASDAQ: JIVE) which IPO'd approximately 3 months ago, and is the oldest IPO of the bunch. Jive has a unique value proposition of providing collaboration services within a company as well as a social platform for outside the firm. This allows the company to better organize itself internally and discuss confidential or proprietary information in house. At the same time, the firm can advertise, promote, and interface with customers, to help better improve sales and get a feel for the market. Jive offers video sharing, analytics and social media monitoring, searching, and collaboration services for Microsoft products. The nice thing about Jive is that it has already snagged some large customers such as EMC, SAP, and T-Mobile USA. As these big names give their recommendations and success stories for the software, Jive will quickly become adopted by other companies and rapidly expand their business. Currently Jive's market cap is just $1.5 billion however this represents about 19x sales for the last year. Investors clearly have big expectations for the stock, and they might be right, as the market for a social and collaboration platform is still largely untapped. Companies are just beginning to learn about the benefits of Jive which means revenues for the company could quickly catch up to the valuation, especially now since the IPOs in the sector has been shining a light on this new way to do business.
A company also in the cloud sector, but with a focus on insurance, is Guidewire (NYSE: GWRE). Guidewire is the only cloud play of the 4 highlighted that is actually profitable. The company recently reported is Q2 results, blowing analyst estimates out of the water. It is clear that the analysts do not yet have a handle on the earnings power of these online firms with powerful business models. GWRE posted adjusted earnings of 16 cents per share while analysts were expecting a loss of 3 cents. Revenue also came in $5 million higher than expected, which is quite significant on such a low basis. Guidewire also continues to sign up insurance companies to use its billing management system. On March 14th, Dominion of Canada General Insurance signed up to join other Guidewire customers including Aspen Insurance, Torus Insurance, and many other insurance companies that can be found on their web site. Guidewire's market cap is almost the same as Jive's, however the firm is already profitable and has more than twice the revenue of Jive. This could allow Guidewire to catch up to Jive's valuation on a Price to Sales basis.
Yesterday's IPO of Demandware (NYSE: DWRE) shone more light into the sector as investors begun looking to see what all the hype was about. The cohort is largely undiscovered but is becoming better known as products and services for social and collaboration platforms become adopted. Demandware is very similar to the other cloud plays mentioned. The company provides specifically tailored e-commerce experiences for consumers using the web or mobile devices. While Demandware jumped on the day of its IPO similar to the other cloud plays mentioned, it may follow the same upward trajectory that Jive, Guidewire, and Brightcove (discussed in a moment) all experienced in the weeks following their IPO's. Jive and Guidewire trade at approximately $1.5 billion in market cap, and while Demandware has a $300 billion market opportunity ahead of itself (which is set to double in the coming years), the stock still trades with a market cap of less than $700 million. As a confirmation to Demandware's present and future success which can help significantly multiply revenues to new levels, Demandware already serves a series of well known companies. The impressive list that can be found on their web site includes Columbia Sportware, Callaway Golf, Crocs, Deckers, Roots, Puma, Reitmans, Playmobil, and consumer goods giant Proctor and Gamble. Competitors and other firms will quickly join the list of Demandware customers when they are looking for a method to catch up to their competition's capabilities.
Finally, cloud streaming company Brightcove (NASDAQ: BCOV) brings impressive capabilities to the table. Brightcove is the least hyped of the bunch, receiving very little media attention, and just trades with a market cap of $500 million despite similar growth trajectory to the other cloud plays mentioned. Brightcove helps businesses with delivery and management of videos for professional web sites. The company is integrated with social media, provides analytics, live streaming, customization, and compatibility with HTML5, YouTube and mobile devices. Customers can even monetize their videos and advertise to attract a larger audience. Brightcove essentially takes full care of the video needs for any company using their cloud services and simple management interface. The company has also begun to line up key customers which are in need of Brightcove's services as video is now a necessity for most professional web sites. Some of Brightcove's large customers include Discovery, Kmart, The New York Times, Showtime, Staples, Fox, Electronic Arts, Seagate, General Motors, Macy's, Merrill Lynch, and Carnival - all major players and leaders in their respective industries. The adoption of this product by such well-known firms will likely lead to an inflow of other companies in the industry to join as they now have product validation.
In summary, Jive, Guidewire, Demandware, and Brightcove are the most recent IPOs in the up and coming cloud sector. Almost all of these names have either flown under the radar or have not been of interest to investors as their business models are relatively new and misunderstood. The trajectory of these companies has been very well received by the stock market as they continue to rise. More investors are learning about the capabilities that these firms have to offer, and hedge funds are building up positions in their cloud portfolios to make a profit. As the firms gain popularity through the media over the coming months, more potential clients will sign up for the services that these firms have to offer - services that have now become a necessity for the operation of a successful business - understanding and interacting with the customer, as well as supplying the features they require for their online businesses. An overview of the business models of these firms should help shine light for investors looking to get in early before these stocks become mainstream. The company web sites each provide excellent transparency for investors to learn more about what these companies do before making an investment. Furthermore, the list of heavy hitting customers that each of these companies displays on their site should give a sense of product validation, showing investors that this is not another fad, but that the new way of doing business online is finally here.
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