Below is my take on why I’m bullish on Jive and why I am adding on weakness. Please excuse any spelling mistakes as I dumped my thoughts out in to this blog quickly without much proof-reading.

Jive took a beating after its earnings release in July. Since then the stock has been range bound in the $6.5-$7 range. Although the company did beat WallStreet consensus on most metrics, it missed a very important metric – Billings Growth. Jive’s short-term billings growth was only +10% year over year vs. Wall Street estimates in the range of 13-19%. After Q1 14, it looked like Jive was back in swing with management and Wall Street guiding 20%+ ST billings growth for the year but Q2 came as bit of a surprise to everyone including management themselves. The management claimed that there were several large deals that did not close in Q2 and slipped to Q3. This definitely contributed to an exaggeration in the slowdown in billings growth for Q2 and the overflow of deals may boost Q3 billings. However, management also did acknowledge that they are likely to face sales headwinds ahead and cut the ST billings growth for FY14 from 20% to mid to upper teens. They did not provide guidance for FY15 which will be interesting to watch given the miss in billings.

There are many reasons why I am not concerned about this and added significantly on the dip. First, let us understand what these sales challenges are and why this should not be a worry. Jive’s revenue is currently a 70-30 mix of internal ESN software vs external ESN software revenue. The internal collab software is their Social Intranet software that the companies get for their employees to collaborate. When Jive went IPO, “Facebook-for-companies” was the motto and it helped Jive grow from <40M in revenue to close to $200M estimated for FY15. Something most don’t know about Jive is that they are also the largest External Community Software provider. Jive’s external collar software is currently being used by large corporations such as Apple, EMC, Humana to create communities for customer support, marketing and other customer engagements. Unfortunately, Jive management, until recently, had done a bad job at marketing their external offerings and most people still only think of Jive as an Internal ESN.

Let us dig deep in to understanding Jive’s Billings growth slowdown. Jive’s sales challenges are exclusive to Social Intranet; software for employees to collaborate. According to my in depth research, growth in this market for Jive has significant slowed down mostly due to competition coming from Salesforce and Microsoft. Salesforce introduced their own ESN software called Chatter which they are giving away free to many customers. Salesforce is at a significant advantage thanks to their CRM software which is considered the gold standard in the CRM market. Salesforce made a smart move of leveraging their lead in CRM to integrate Chatter as a platform and gave it away free to many customers. Sales employees were able to collaborate easily within their CRM software using Chatter, throwing pure ESN plays like Jive at a significant disadvantage. Similarly, Microsoft has been integrating their Office 365 solution with Yammer and giving away Yammer free to customers. This has suddenly slowed down Jive’s growth in the Internal collab market. The company pointed out in the conference call that this evaluation of the entire Enterprise Software Packages by companies is taking longer because companies have started seeing Internal Collab software as part of ERP suite. Prospects are questioning if they need Jive in addition to Salesforce CRM or Office 365. The Jive go-to-market strategy team has been working to help customers understand the advantages of adopting pure-play ESN software by integrating with best of breed Enterprise software from Productivity tools such as Office 365 to transactional systems such as Workday, Salesforce CRM to high-tech conferencing tools such as WebEx. Obviously, Jive’s offerings are miles ahead of other ESN software vendors such as Salesforce, Oracle, SAP, and IBM. Jive’s latest “summer release” has been a testimony to this focus on integration. Moreover, according to my independent research, Chatter adoption has mostly been limited to Sales personnels. Chatter adoption by other departments in companies have been slow for most Chatter customers. Most companies are yet to realize the important of collab software within the context of the entire company. As companies start to realize the importance of collaboration software beyond Sales teams, I believe Jive will start to realize the return on investments esp in the area of integration (aggregation across ERP offerings).

What if Jive’s GTM strategy does not work ? Believe it or not, it is still a win-win situation for Jive. Salesforce’s secret sauce has always been their platform and their huge developer community that has been hacking away applications to meet the various business challenges of its customers. Salesforce first took over the CRM software sector. Next it took over the Marketing software sector. Salesforce along with it’s “platform friends”, such as FinancialForce.com, ServiceMax are now read to take on other sectors. I predict that Salesforce will enter in to other territories such as Supply Chain, Hospitality and Healthcare software next with the blessing from their Force.com platform and MASSIVE developer community backing. Salesforce also has a great partnership in the HR market with Workday using Salesforce platform including Chatter platform. This leaves the likes of SAP, Oracle, IBM, and Microsoft in the battle zone to defend their market share. As these incumbents battle to build out similar platforms, a collaboration platform will become a key part of the platform. The only cloud ESN product in the market that matches and beats Chatter’s capabilities is Jive. The rest of the companies’ offerings are years behind in capabilities and most importantly brand name that Jive has building. This is why I think there is a good chance Jive will get bought out as Salesforce becomes a bigger competitive threat in the ERP market beyond just CRM.

Lastly, I wanted to highlight another important part of my bull thesis for Jive software – JiveX External Communities platform. As I have mentioned several times before, Jive is not known for their External Communities platform which the management has been working on with well defined use case for External Portals and Communities. This is one sector Jive has been leading with not much competition from other vendors. Salesforce launched Chatter Communities few years back but never really gained much traction. Just few hours ago, they re-launched Chatter Communities branded as SalesForce1 Communities but this is one area SalesForce hasn’t been able to crack. This is because, unlike the Internal ESN, the external communities has a well defined use case which doesn’t need to be forcefully plugged in to the ERP suite. Most support communities have no need to do that. Salesforce1 Communities might be able to win some customers which need integration with CRM, Marketing lead gen but this is do-able today in Jive External Communities Platform. Jive External Communities has a big markets share and is growing rapidly as companies are starting to use Online Communities as way to communicate with customers instead of traditional methods. Online communities is also a necessary tool for companies to market and meet their customers engaged in their products and services. Jive management has recognized this and have been putting in a lot of investment in this area including the new cloud version of this called JiveX. The only other company that is close to the offerings of JiveX is a startup called Lithium. They have been fighting head on with Jive in this market but according to my research, Jive is well ahead of Lithium in terms of customers, brand name, as well as the maturity of the Platform.

My prediction is that Jive will slowly but surely start to see a shift towards External Communities away from Internal Communities as the market for External ESN Communities is growing at a much faster pace than Internal ESN. As Jive focuses its go-to-market strategy on much larger, ESN for External communities market, it is bound to regain some of the momentum in new customer wins and achieve 20%+ ST billings growth. Management did note that they are getting a lot of deal activity in this space and it is exciting to see customers like Humana, Apple, EMC, VMWare, SAP building huge communities on Jive Platform to connect with their customers.

Another important point to note is that none of the larger Enterprise vendors – Oracle, SAP, IBM, Microsoft have ESN software for communities. In fact, Oracle and SAP are important Jive customer. Both these companies have thousands of community users active on Jive External Communities Platform. As Salesforce start to pitch Salesforce1 Communities in to their deals enhancing what they refer to as “Internet of Customers,” I definitely see Jive’s value as an M&A target increase by multiple folds with no such offering in place for these larger enterprise incumbents. IMO, the billings growth slowdown will only be a short term problem till we start seeing some deal activity in JiveX with references from customers like Verizon, Esri, EMC, ServiceMax etc.

Last point I want to note is with regards to the Cisco partnership which is also an important part of the bull thesis for Jive. As I have tweeted and blogged many times before, Jive’s solutions doesn’t just span across ERP applications but it is also an important part of the collaboration technology IP itself. Companies like Cisco, Microsoft, Google want to capture the market share in productivity tools such as Office, Web Meeting, Real-Time Collab etc. Obviously, these solutions become much more powerful and useful when packaged with ESN. Cisco is trying to fend off threats to their WebEx business – which is a significant part of its collaboration business- by ensuring WebEx has a social element attached to it. Cisco attempted to create ESN called Quad which failed to take off. Without a social element to WebEx, it become a simple replacement for enterprises which are looking for comprehensive collaboration packages. Salesforce has already been working on this for some time now with their acquisition of WebEx competitor DimDim. In short, these productivity tools are meant to provide a channel of communication with the user base coming from ESN systems. This is why Microsoft also bought Yammer so they can enhance Office 365 productivity with ESN software. Google tried to pitch Google+ for Businesses but that too has failed. Google has all the technologies including Google Hangout, Google for Business Apps (Gmail, Google Drive) but has failed to win over the Enterprise market. This is one area Microsoft can claim victory over Google. As the market for real-time collaboration technologies picks up, I expect Jive to benefit largely from the competition that is heating up in this market and possibly get acquired by Cisco or even Google !

Unfortunately, none of this is discussed or analyzed by analysts who are focused only on the immediate and very near term numbers. Most analyst reports I read did not model the leverage that Jive gets from Cisco’s reseller sales network. I think this can also lead to a surprise in FY15 and FY16 numbers which are not being modeled in all analyst reports I pulled out on my Bloomberg Terminal.

 

DISCLOSURE: Long Jive

DISCLAIMER: The above is my opinion intended for informational purpose only and should not be used as professional financial advice. The above is not a recommendation to buy, sell, or short stocks or options. By reading the above text, you agree that any trades or investments you make are solely your responsibility. I cannot assure you that the above information is accurate. Trading stocks or options can be risky. Any profits, losses, or break even are solely your responsibility. Please consult a certified professional before buying or selling any such stocks or options.

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