SuccessFactors Rises After $107.9 Million Share Sale

By Tim Mullaney

Nov. 20 (Bloomberg) -- SuccessFactors Inc., the maker of Internet-based human-resources software, rose as much as 41 percent on the Nasdaq Stock Market after raising $107.9 million in an initial public offering.

The company and four shareholders sold 10.8 million shares at $10 each, SuccessFactors said today in a statement. Goldman Sachs Group Inc. and Morgan Stanley managed the offering.

SuccessFactors is tapping investor demand for companies that make software delivered online as a service. Salesforce.com Inc., whose shares have risen fivefold since 2004, and Athenahealth Inc., which has doubled since its September IPO, also deliver so-called on-demand software. SuccessFactors' closest competitor, Taleo Corp., has risen 83 percent this year.

``A lot of people want this kind of business model, but not many get to critical mass -- these people have,'' said Francis Gaskins, president of IPODesktop.com Inc. in Marina del Rey, California. ``It's a big market, with a lot of competition.''

SuccessFactors rose $3.33 to $13.33 at 12:56 p.m. New York time, after earlier reaching $14.14. The offer price was at the high end of the San Mateo, California-based company's anticipated range of $8 to $10 a share.

SuccessFactors has 1,400 customers, which use its software for tasks such as recruitment and performance reviews. Its customers include AMR Corp.'s American Airlines, Kimberly-Clark Corp. and Lowe's Cos., according to regulatory filings.

Widening Loss

SuccessFactors' net loss more than doubled in the first nine months of 2007 from a year earlier to $49.2 million. Sales more than doubled to $44.1 million.

The six-year-old company's cash-flow losses are much smaller than its loss under generally accepted accounting standards, Gaskins said. In the first nine months of 2007, the company used $16.2 million in cash for operations.

Most of the difference came from money customers have paid for services SuccessFactors hasn't yet delivered, which isn't included in its reported revenue yet, Gaskins said.

The money raised in the IPO is enough to sustain SuccessFactors until it generates a positive cash flow, Gaskins said. About $21 million is earmarked for debt repayment, and the rest will be used for general corporate purposes, the company said.

Chief Executive Officer Lars Dalgaard and Vice President Luen Au sold shares in the offering, along with two other shareholders.

The biggest risk is that SuccessFactors is spending more on sales and marketing than it's making in revenue, said Nick Einhorn, an analyst at Renaissance Capital in Greenwich, Connecticut.

``The growth has been there so far,'' Einhorn said. ``If people think they can grow 50 percent a year for the next several years, it's not that bad. But you do have to be wary.''