Cloud Computing Consolidation

This week we had a ton of earnings be announced but something else that caught my eye was the cloud computing consolidation that is going on in the software as a service sector.  On Thursday, Oracle announced that it was purchasing Taleo for $1.9 billion dollars in the chess match with its rival SAP across the pond who at the end of last year purchased Successfactors which was one of Taleo’s direct competitors.

Cloud Computing Consolidation

After the SAP acquisition of SuccessFactors, I wrote about how we would see more consolidation in the space (article post) and it did not take but a few months before the next buyout happened this week.  This was quicker than my estimate of Taleo being purchased by the end of the year at that time.  We saw that there was going to be more cloud computing consolidation in this space as there were only a few companies that were leading the market in this HR Talent Management space, Successfactors, Taleo, and a far third was Kenexa.  These companies started out only having one product, but quickly turned into selling a whole portfolio of products to deal with different needs of the HR business.  This means selling and implementing software for recruiting, performance management, learning, compensation, and succession.   Both Oracle and SAP both wanted to get into this market because they did not have the cloud in their portfolio and that is where the software industry is going.  EMC and VMWare both pioneered this cloud computing and now we see cloud computing software with all of the big tech companies, Oracle, SAP, Microsoft, and even Apple now has a cloud component within their portfolio. 

I think we will continue to continue to see cloud computing consolidation across the board.  Microsoft is soon going to have to get into the mix but there are only a few small companies left, with Kenexa the one left hanging out to dry.  This company if it does not get bought out will most likely start to see a death spiral as SAP and Oracle can out price them and kill them off.  That would be the best form of cloud computing consolidation. Now the other players in the cloud like EMC, VMWare, and Salesforce.com all have very big market caps with Salesforce.com having the smallest with a 17.5 billion dollar market cap.

News outside of the cloud computing consolidation 

Outside of the cloud computing consolidation, we have earnings and Europe headline the news for next week.  Europe will be the number one focus as the austerity in Greece is not occurring like everyone would like and soon we will have to focus on Portugal, Italy and Spain again as well.  Europe will just not go away and it keeps lingering on as it has for now 2 years. 

In earnings, we will see newly IPO’d Zynga report and if they follow suit of Groupon they will have a nice fall.  I recommended shorting Groupon every time it gets up to the $25 price, and that has been very successful.  I see a similar trend with Zynga coming up as well.  On Wednesday we will hear from Deere, Devon Energy, Abercrombie and Fitch, Dr. Pepper Snapple, Cliffs Natural Resources and NetApp.  On Thursday we will hear from Baidu, VF Corp, and Waste Management. 

Out of these big names, we will continue to see if the economy is improving as we keep hearing on many conference calls as well as in the sentiment data being released by the US government.  Deere should report a very good quarter after all of the great conference calls we are hearing in the ag names in the last couple week.  I also see a good quarter coming out of Baidu.  I am curious to hear from Cliffs on how much coal they are sending to China to get a view into how well they are doing.  All in all, there will be plenty of earnings to listen to keep us busy in the upcoming week even if we do not see another takeout in all of the cloud computing consolidation that is going on.

Have a great weekend,

Vinny