Oracle took over PeopleSoft in 2005 in a bitter takeover for $10.3 billion. Now the team is back together to take them on. The idea is the same to sell human resources software but delivered through a different way. WDAY is taking advantage of the opportunity to deliver their services through the cloud and not through on premise systems. Instead of installing expensive hardware and software on the clients premises WDAY can deliver software through the internet, a cheaper and easier to manage proposition for customers.
Power of one
WDAY takes inspiration from Amazon, Google and Apple which have one version and one system. What these companies excelled at was making their systems intuitive for users and easy to use on mobile, features most business software lacked. WDAY seeks to emulate the consumer experience with what they call the power of one. The power of one is one system, one version. Even though the applications can be configured to meet individual customer needs they all share the same basic system, one version. Everyone is upgraded at the same time, users always have the most up to date version, upgrades can occur more frequently and are managed by the vendor and not by the company. One version makes it much easier for call centers to deal with any inevitable issues.
Can’t solve today’s problems with yesterday’s solutions
The enterprise software industry has seen a major shift before, transitioning from mainframe to client servers on premise and now the cloud (see chart below).
As WDAY points out the
companies that were successful during the last transition were newer companies such
as SAP and Oracle which built products from the ground up. Now Oracle and SAP
are saddled with legacy software with a foot in each camp. They have the opportunity
to sell cloud based software but at cheaper prices which would cannibalize
their high margin legacy on premise software.
As the Co-CEO of WDAY Annel Bhusris says
you can’t solve today’s problems with yesterdays solutions. According to some
case examples in the S1 WDAY can save customers up to 30% over 5 years when compared
with traditional on premise HR systems. Also due to ease of use it has
empowered employees to take advantage of information to make more timely and
effective decisions.
Valuation based
on sales?It’s never a good sign when the valuation is based on sales. Consumer IPOs like Groupon, Facebook and Zynga did not do well. What makes this IPO slightly different is the management team, they have been here before and more importantly technology companies selling to other companies have done well post IPO. Palo Alto Networks is up an additional 17% and Service Now 46% from the first day of their listing, these companies did list on slightly lower sales multiplies of 12-13x.
Risks
Switching costs for companies are immense. Companies have invested substantial personnel and financial resources there is also security risks as company information is kept in the cloud and not on premise. The on premise competition is Oracle a $148 billion company and SAP $84 billion. A company with a similar cloud based approach but focused more on customer relationship than employee management is Sales Force with a $21 billion valuation. Two other cloud based companies have been taken out by the larger players over the past year.Taleo by Oracle for $1.9 billion in February 2012 and SuccessFactors by SAP for $3.4 billion December 2011. These defensive moves by the incumbents suggest that the move to the cloud is real and a major threat to their businesses.
For a $4 billion company WDAY is talked
about quite a lot. According to Bloomberg
Larry Ellison has mentioned WDAY 8 times on
Oracle calls over the past year, a similar number to Salesforce which has
turned out to be a great indicator. Larry is giving more and more credibility
to WDAY, Larry you are protesting too much!
Time to upgradeWDAY is a compelling story with a seasoned management team back together again to take advantage of technology to better deliver their services. This is an IPO to own.
Disclosure:
Decisive has no position in WDAY
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in this article is for informational purposes only and in no way constitutes a
solicitation of business or investment advice. The material has been prepared
without regard to any client's or other person's investment objectives. Before
making an investment decision you should consider the assistance of a financial
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