The On-Demand or SaaS (software as a service) software index started off the New Year with a gain of 3.9 percent. That is in relation to a gain of 3 percent for the S&P 500 and the iShares S&P GSTI Software Index Fund (IGV) daily gain of 4.2 percent on the first trading day (1/2/09) of 2009. That follows a gain for the last month of the On-Demand Index of 9.6 percent versus 5.7 percent S&P 500 and 8.5 percent for the IGV.
The recent gains are great news and may indicate a bottom has been established. It is still uncertain whether that bottom will be retested. Keep in mind that it will be difficult to fight the market if it continues to be a bear market that is just pausing or a recession if it is severe or stretches though 2009. It is likely that the software industry sub-sector and On-Demand Index will maintain some correlation, especially if the stock market or corporate IT spending stays in the doldrums just as they have over the last month.
There were many articles from On-Demand software enthusiasts who claimed a year ago that on-demand software was both recession- and bear market-proof. Although many on-demand software companies continued to grow, with their P/Es being so high (or non-existent for those still not making a profit) these stocks were “priced to perfection” and any slowdown in growth put severe pressure on their prices. The on-demand index lost 51 percent of its value in 2008 compared with losses of 34 percent Dow, 40 percent Nasdaq and 38.4 percent for the S&P Software Index (IGV).
A couple of key questions when considering investments in any of these stocks: Will 2009 be the breakout year for on-demand software? Will this type of software grow despite constrained corporate IT spending this year? We will discuss in subsequent posts.
New & Improved!!!
The On-Demand Index has been expanded to include several new columns. We maintain the year-to-date (YTD) performance but have added training performance number for 1 month, 3 months, 6 months and 1 year. These performance statistics have been added to give more insight into how these stocks and the index have been fairing over varying time periods. In addition, we have added a column with the 2008 performance statistics (just to keep us humble.)
Note: Although very happy with Google Docs and Google Finance along with their excellent customer support, we do get some N/A#s occasionally in the new columns I mentioned. Be patient, when refreshed these numbers generally get filled in.
fyi: The index is calculated on an equal-weight representation based on closing prices as of 12/31/07.
Disclosure: I have no current stock positions in any of the companies listed in this index and no current business partnerships.