ASX Software-as-a-Service (SaaS) shares have become an area of intense and red hot interest over the past few years. And fair enough too. Scaling a business through a SaaS earnings model can be a very lucrative exercise indeed. We have seen this in action with some of the performances of the ASX's most well known SaaS shares.
Take Xero Limited (ASX: XRO) for instance. Investors can largely thank Xero's SaaS model, which allows Xero to develop its cloud-based accounting software as almost a 'one-off cost' and then on-sell it via a cloud subscription at almost no extra cost per additional customer. It's this model which has largely allowed the Xero share price to rise from around $17 five years ago to the $132 it's going for today.
So even though we now know the potential of a successful SaaS model, it's worth a look to see how this sub-sector of the ASX fared over the 2021 financial year that has just ended. As your about to see, just having a SaaS model isn't necessarily a ticket to instant success:
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How some of the most popular ASX SaaS shares have performed in FY21:
| ASX SaaS share | FY2021 share price performance | Market capitalisation |
|---|---|---|
| Pro Medicus Limited (ASX: PME) | 125.7% | $5.85 billion |
| Xero Limited (ASX: XRO) | 65% | $19.7 billion |
| WiseTech Global Ltd (ASX: WTC) | 65% | $9.8 billion |
| Whispir Ltd (ASX: WSP) | 21.4% | $319.2 million |
| Altium Limited (ASX: ALU) | 13.8% | $4.88 billion |
| TechnologyOne Ltd (ASX: TNE) | 5.8% | $2.92 billion |
| Nearmap Ltd (ASX: NEA) | (17.3%) | $965.5 million |
| Pushpay Holdings Ltd (ASX: PPH) | (19.2%) | $1.71billion |
| ELMO Software Ltd (ASX: ELO) | (40.5%) | $395.3 million |
As you can see, healthcare SaaS company Pro Medicus was one of the best performing SaaS companies on the ASX over FY21, managing to put on a 125.7% gain over FY2021. Pro Medicus is a company that sells medical diagnostic imaging software. It has benefited from several developments over FY21.
In mid-May, Pro Medicus announced a The University of Vermont Health Network contract that is scheduled to last for 8 years. This contract will see Pro Medicus' Visage 7 Enterprise Imaging Platform deployed across 6 hospitals operated by the University, locking in a lucrative revenue stream. Additionally, the company also announced in June that it had signed another long-term contract, this one with the US healthcare provider Mayo Clinic.
Xero and WiseTech SaaS their way to growth
The aforementioned Xero is also close to the top of this list, with a FY21 performance of 65%. It was raw growth numbers that seemed to be working in Xero's favour last financial year.
Xero gave investors its full-year earnings for the 12 months to 31 March a few months ago. The company reported that revenues grew by 18%, subscriber numbers were up by 20% and earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 39%. As you might expect, investors were clearly impressed by this SaaS company's model continuing to execute well.
The same could be said for SaaS logistics solutions company WiseTech Global. WiseTech also managed a 65% gain for FY21. This was spurred by the company's half-year earnings report for FY21 that WiseTech divulged back in February. This highlighted revenue growth of 16% and EBITDA rising by a very pleasing 43%.
Communications platform provider Whispir was another SaaS share that had a relatively successful FY21. Again, it was strong growth that seemed to encourage Whispir investors. The company's April quarterly update was emblematic of this. Whispir reported that annualised recurring revenues grew by 20.3% over the 3 months to 31 March 2021, compared to the previous year's quarter.
SaaS doesn't always equal success
However, it's worth noting that not all SaaS shares soared over FY21. Some clear losers are obvious in the table above, namely Nearmap, Pushpay and ELMO Software.
Pushpay was an interesting case. Even though it delivered seemingly impressive numbers in its annual earnings report back in May, investors have not given it a very nice run at all in FY21. That was despite revenues jumping by 40% and earnings by a whopping 133%.
Turning to Nearmap, and revelations last month that it would be facing legal proceedings for alleged patent infringement really seemed to derail this company's share price performance for FY21. It's worth noting that Nearmap has assured investors that the company's business remains unaffected and that it is defending these allegations vigorously.
And finally, let's take a look at the SaaS FY21 wooden spooner in ELMO Software. ELMO did deliver some impressive numbers with its half-year earnings back in February. The company told investors that its revenues grew by almost 30% in the 6 months to 31 December 2020, helped by user numbers climbing 95.7% over the prior corresponding period.
However, as my Fool colleague Frank covered last month, ELMO has also been heavily diluting its share count over FY21, with a $90 million capital raise program that was held over May. This might at least be partially behind its poor share price performance over FY21.
Foolish takeaway
As we've seen with some of these ASX SaaS companies, a software-as-a-Service model can be a very efficient path for companies to grow their revenues and earnings. However, it doesn't always work out as planned. SaaS companies can succeed, but they usually need more than just the SaaS model to do so.
