Citi Initiates Coverage On SuccessFactors With A Buy, $45 PT

SuccessFactors

has consistently shown an ability to up-sell new products into its base and drive larger deal sizes with new customers. With new products such as EmployeeCentral and Calibration, Citi expects this will continue. Up-sell of new products drives escalating customer lifetime value, the most important lever of value creation in SaaS. SF has traded at a premium to the SaaS universe due to its ability to up-sell, and Citi believes this premium will persist. SuccessFactors is reinvesting in growth and is poised to capture catch-up spending. Citi believes consensus estimates imply a massive deterioration in sales productivity. Citi's billings estimate of $350M for FY11 is 8% ahead of consensus $325M, which is the largest positive variance in Citi's estimates vs. consensus in its coverage universe. Superb sales execution will be required to maintain above-peer growth rate, there is some risk of large and disruptive M&A needed to build out the suite and the talent management market continues to be competitive. SFSF closed Wednesday at $37.01