SuccessFactor soars in market debut
By Lilla Zuill

NEW YORK, Nov 20 (Reuters) - SuccessFactors Inc (SFSF.O: Quote, Profile, Research) soared on Tuesday, a day after an initial public offering that raised $108 million, the top of expectations.

Shares opened at $13 per share, 30 percent higher than its $10 IPO price, By end of day, the shares were at $13.25, up 32.5 percent on Nasdaq.

On Monday, the unprofitable maker of web-based performance management software sold 10.8 million shares for $10 per share, compared with a forecast range of $8 to $10.

Underwriters, led by Morgan Stanley and Goldman Sachs, have the option to purchase an additional 1.6 million shares to cover overallotments.

Based on its opening price, the company has an initial market capitalization of about $650 million.

SuccessFactors said it intends to use net proceeds to pay down debt and for general corporate purposes.

LOSSES MOUNT

For the nine months ended Sept. 30, the company recorded a net loss of $49 million on revenue of $44 million. That compared to a net loss of $22.9 million on revenue of $21.2 million for the same period a year ago. In the quarter ended Sept. 30, its net loss was $20 million on revenue of $16.7 million.

While technology companies selling their shares to the public for the first time are often unprofitable, analysts said most of the new issues year to date have won favor with investors because revenue growth was growing rapidly while losses were narrowing.

"SuccessFactors can't seem to get their losses under control," said Scott Sweet, managing director of research firm IPOboutique.com. "This is very atypical of what we have seen recently."

Francis Gaskins, president of research firm IPOdesktop.com, said SuccessFactors' losses in the last quarter were equal to 121 percent of its revenue for the same period.

"That is a 5.5 times cash burn rate," he said, adding that it was rare to see a new issues going through cash that quickly.

Gaskins added that sales and marketing, research and development and administrative costs gobbled up $30 million in the last quarter -- nearly double SuccessFactors' revenue for the period.

As a provider of Web-based performance management software, SuccessFactors is also up against increasing competition.

"Several competitors came to market this year, that does not bode well," Sweet said.

Among its competitors are Salary.com Inc (SLRY.O: Quote, Profile, Research), which at $13.09 per share is trading higher than the $10.50 it fetched in its February listing, but about 20 percent below its year high of $16.32.

Another, Kenexa (KNXA.O: Quote, Profile, Research) is trading at $17.43 per share, about 60 percent below its year high of $42.44.

Salary.com announced a third quarter loss on Nov. 1, while Kenexa's third-quarter profit was lower than Wall Street expected, and its shares dropped after it announced disappointing outlook for the fourth quarter.

SOLO DEBUT

On Monday, an offering from CreditCards.com was postponed due to market conditions, leaving SuccessFactors as the sole U.S. IPO expected this week, generally a quiet week for offerings given the U.S. Thanksgiving holiday.

"Any money earmarked for CreditCards.com may have been reallocated to SuccessFactors," said Sweet.

He added that SuccessFactors may also have got a boost from a bounce in U.S. stocks on Tuesday. Both the Dow Jones industrial average (.DJI: Quote, Profile, Research) and S&P 500 Index (.SPX: Quote, Profile, Research) were up almost half a percent by Tuesday's close, after an initial bump, then fall.

IPO TRACK

There have been 262 U.S. IPOs year to date, according to data tracker Dealogic. That volume puts 2007 on track to be the best year since 2000.

And November has been the busiest month so far this year, with 35 new issues having debuted and four more on the calendar for next week.

However, the U.S. IPO market has had a surge of withdrawn and postponed deals in recent weeks, according to Dealogic.

Management of many of the withdrawn deals have cited unfavorable market conditions as the reason for pulling offerings.

November has been the busiest month for halted IPOs in more than three years, according to Dealogic. Thirteen deals have been postponed so far this month, the highest number of withdrawn deals for any one month since November 2004, according to Dealogic's data.

In October, 11 deals were delayed or canceled, more than double the average rate of about 5 withdrawn or postponed IPOs each month through the first nine months of the year. (Editing by Toni Reinhold)