Enterprise Software Market Growth Hindered by Strong Dollar, Transition to SaaS

ARC Advisory Group (www.arcweb.com) monitors and analyzes the enterprise software market on a quarterly basis.  We track the revenues of fifteen prominent publicly traded enterprise software companies and translate financial results reported in foreign currencies to US dollars using an average exchange rate for the given reporting period. The suppliers’ reporting period for this analysis is the quarter ended December 2015, unless stated otherwise.

The suppliers included in this report recorded combined quarterly revenue of $24.3 billion, representing a 3.1 percent year-over-year decline from the same period in the prior year. The decline was mainly due to the weakening of the euro and other currencies against the US dollar. The euro depreciated relative to the dollar by over 12.3 percent from Q4 2014 to Q4 2015. Also hindering revenue comparisons is delayed revenue recognition due to many suppliers transitioning from upfront recognition of perpetual licenses to periodic recognition of SaaS revenues.

The year-over-year change in supplier revenues ranged from a decline of 12.9 percent to growth of 8.5 percent. QAD, as an example, reported a 12.3 percent decline in revenue. The company is in the process of transitioning from a perpetual license model with upfront license revenue recognition to a SaaS model with periodic revenue recognition. The increase in subscription fees does not entirely compensate for the reduction in software license revenues, leading to a decline in revenues. In addition, there is a currency effect. For example, in constant currencies, revenue declined by 8 percent, with the remaining 4 percent due to currency fluctuations. In contrast, Manhattan Associates recorded an 8.5 percent year-over-year increase in revenues. The increase is largely due to factors specific to the company and its target markets. However, over 80 percent of Manhattan Associates’ revenues were from the Americas, largely avoiding negative currency effects. And the company continues to primarily sell its software through perpetual licensing.

ARC’s quarterly analysis of the enterprise software market has shown revenue declines for the last year. The chart below presents the quarterly year-over-year growth rates since Q4 2013 as well as the year-over-year change in the value of the euro to show the relationship between the weak euro and impact on revenues as reported in US dollars.

Conclusion
In aggregate, 2015 represented a year of declining revenues for the set of enterprise suppliers ARC tracked on a quarterly basis.  Much of the decline is a result of the strong US dollar with respect to foreign currencies. The transition of many suppliers’ businesses from perpetual licenses to subscriptions also delayed the recognition of revenue to future periods. However, both of these factors do not directly relate to the core health of the business, but instead reflect transient factors affecting revenue reporting and translations. The removal of these factors would present a more positive picture of these companies and their recent performance.

This is a quarterly report, published after all the companies on the list release their revenues. If you would like a complete copy of this analysis, including the results of the fourteen enterprise software companies covered, please contact chanf@arcweb.com.