Cornerstone OnDemand

01/21/2015 7:00 am EST

Focus: STOCKS

Rob DeFrancesco

Founder, Tech-Stock Prospector

Our Top Pick for more conservative investors is a firm in the cloud-based human capital management (HCM) software sector, explains Rob DeFrancesco, tech guru and editor of Tech-Stock Prospector.

Even after going through a consolidation phase a couple of years ago, this sector remains fragmented, with the top 10 vendors controlling about half of the market on a subscription revenue basis.

Cornerstone OnDemand (CSOD), one of the top players (though holding less than a 4% share), has an ambitious goal to hit $1 billion in revenue.

For 2014, Cornerstone, a specialist in talent management (covering recruiting, onboarding, learning, performance management, succession planning, and compensation management), is expected to come in with revenue of $261 million, putting the company a little over a quarter of the way to its longer-term target. For this year, revenue is expected to advance nearly 31% to $341.5 million.

Thanks to the recurring revenue model (customers pay annually upfront based on the number of employees), Cornerstone starts each year with about 70% revenue visibility.

The company has more than 1,950 enterprise and mid-market customers, along with 700 smaller accounts. It has an impressive 16.6 million users in the cloud (after adding 1.1 million in the latest quarter), representing about 27% of the industry’s current installed seats.

With the total addressable market estimated at 400 million seats worldwide, the cloud-based segment today has a penetration rate of just 15%.

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