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Full marks for disclosure to the top team at AIM-listed, social media SaaS pure-play, SocialGo (see SocialGo – the DIY social network). The detail in today’s FY results gives a revealing insight into the true costs of SaaS.
As we have always said, the clue to SaaS is in the last ‘S’ i.e. Service. And no more clearly can you see this than in SocialGo’s cost of sales breakout, which comprises (in round numbers): server costs (25% of revenues), sales & support staff (27%); payment processor fees (6%); and revenue share with third parties (6%). That’s 63% of revenues in total. And remember, that’s before R&D costs and SG&A.
Be it no surprise, then, that SocialGo is loss-making, to the tune of £1.18m on £734k of revenues. Whether this breakdown is typical for a SaaS start-up I can’t say as yet, but I suspect it’s not unusual. Let’s also not forget that many of the well-known mature SaaS ‘pure-plays’ also lose money hand over fist (see Salesforce.com trumpets social growth but swings to a loss).
For SocialGo, the race is on. As CEO Alex Halliday puts it, “We must now refocus our efforts to grow and develop the market for social website products and tools, as we strive to deliver profitable results for the business along with cash positive operations”. Accent on the ‘cash positive’ – SocialGo burned through £819k in operating cash alone last year and they closed the year with just £347k in the bank.
After a spurt last Monday when SocialGo’s share price briefly leapt to 1.6p (see Penny stock SocialGo keeps stiff upper lip), today’s news sees shares down 9% to a tad over a penny again. The irony is, I do rather like what they are doing – and it’s all great ‘Little British Battler’ stuff. SocialGo tapped the market for cash early last year, and even paid their brokers’ fees in shares. Great 'support' – but will it be enough?
