By:
Nicholas Arco, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• BlackLine, Inc. (NASDAQ:BL) is a leading provider in cloud-based
software that automates and controls the companies’ financial close process. They
operate in two segments: Subscription & Support and Professional Services. BL
brings in 80% of their revenues from the United States.
• BL estimates their total
core addressable market to be ~$18 billion.
• BL recently announced
that it expanded its partnership with SAP entering into a reseller agreement with
the global giant.
• In Q3 the company
reported a 109% dollar-based net revenue retention rate and has seen customers increase
at a 25% CAGR since Q1 2015
• FY18 YTD gross margins
are high at 82% driven by ~96% SaaS recurring revenues.
Key
points: While company guidance puts FY2018 full-year revenues
at about $227 million, BlackLine Inc. estimates its total addressable market to
be ~$18 billion. Currently serving 2,500 companies, they believe there are
165,000 target companies with 13 million finance and accounting professionals
that could greatly benefit from this software. These numbers suggest
substantial growth potential for a company that pioneered this market.
In November, BL announced
that they expanded their partnership with SAP in the form of a reseller
agreement. SAP will now add BlackLine solutions to their pricelist, making it
easier for their customers to benefit from BL’s product offerings. Part of BL’s
growth strategy set forth by management is to focus on international expansion.
SAP, a German based, multi-billion-dollar software company, offers BL increased
access to SAP’s vast customer base and the potential to expand globally and
further drive top line growth in foreign markets. They company also recognizes
that this partnership will free up sales and marketing dollars to invest in further
growth.
BlackLine reported a 109%
dollar-based retention revenue rate in their last earnings report. Though this
number has been slightly decreasing over the past couple of years, it is indicative
of their ability to retain and grow existing customer relationships. Therefore,
this strong number remains a significant financial highlight. BlackLine has seen
their number of customers grow at a 25% CAGR since Q1 2015 and their number of
users grow at a CAGR of 22% over the same time frame. On average, the company
has added 95 new customers in each of the last three quarters. Additionally, customers
generally pay fees based on the number of platform users meaning an upward
trend in this metric indicates company growth. The upward trend in new customers
and users should feed a continually high retention revenue rate, a good sign
for investors.
Finally, BL experiences continually
high gross margins. At 82% (Non-GAAP) YTD 2018, the company is able to realize the
benefits low COGS due to a high rate of recurring revenues. It is noteworthy
here that the previously mentioned SAP partnership is expected to have no
impact on gross margin as the company will record revenue from that area at
100% of deal value.
What
has the stock done lately?
Month-to-date we’ve seen the
stock price drop 7.84%. While this may seem concerning, it is important to
point out that over the last 30 days, the stock is up 1.2%. Therefore, the recent
dip in its price can be attributed to a broader market selloff that especially
hurt tech stocks.
Past
Year Performance: BL has increased 13.73% over the past year.
Furthermore, the stock is up 20.6% YTD. However, significant market volatility has
continued to bring the stock down from its 52-week high in late September and
it now sits closer to its 52-week low presenting investors with an opportunity to
buy this high potential stock at a discount.
Source: Google Finance
t
My
Takeaway
BlackLine is a leader in cloud-based
software to automate the financial close process, positioned well to take
advantage of an $18 billion TAM and 165 thousand potential customer companies. BL
has a laser focus on their growth strategy which has been expressed through their
newly expanded partnership with SAP. This attitude will continue to drive top
line growth in new markets. The types of products and services that they offer bode
well for high gross margins as they are able to take advantage of high recurring
revenues and expand their relationships with current customers at low costs of
sales. Strong trends in customer and user growth indicate continued strength in
their revenue retention rate. Overall, BlackLine has strong fundamentals that
will continue to drive company growth. Due to recent stock market volatility, investors
can buy this stock at a discount, with the expectation that it will rebound.
