Wednesday, November 11, 2020

A Small Cap Equity holding: BlackLine, Inc. (BL, $101.35): “Modernizing Accounting with Top of the BlackLine Solutions” by: Natalie Frey, AIM Student at Marquette University

BlackLine, Inc. (BL, $101.35): “Modernizing Accounting with Top of the BlackLine Solutions”

By: Natalie Frey, 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.


• BlackLine, Inc. (NASDAQ: BL) provides cloud software that automates accounting and finance operations through modernization and innovation of standard procedures required within traditional accounting and finance functions in any given organization. 

• BL announced on August 6, 2020 that the board of directors had elected Marc Huffman, the current COO, to succeed Therese Tucker as the CEO of the firm effective January of 2021. Following the announcement of the pending shift in management, BL’s share price declined nearly 11% before recovering in early September 2020.

• Total GAAP revenues for Q3 2020 were up 21% YoY, with the revenue growth attributable to the addition of 88 net new customers and expansion of the company’s user base. 

• In October of 2020, BlackLine executed its first ever acquisition of Rimilia Holdings Ltd. for a transaction value of $150M. 

• The acquisition of Rimilia is intended to add AI-powered accounts receivable automation to BL’s existing modern accounting platform. 

Key points: BlackLine, Inc. remains 'in-play'. As of the August 2020, BL has been a top performer in the AIM small cap fund within the information technology sector showing a total return of 46.62% in the fund and a CAGR of 122.05%. 

Within BlackLine’s third quarter earnings call, the firm’s sitting CEO and founder, Therese Tucker, claimed that Q3 results were strong as the current demand environment continued to steadily improve from initial declines driven by the pandemic. Additionally, Tucker mentioned the prospective growth that is expected to be driven by the recent acquisition of Rimilia Holdings Ltd.

BlackLine’s acquisition of Rimilia Holdings represents the first acquisition in the firm’s history since their IPO in 2016. Rimilia is a provider of financial software that tightly integrates the front and back office, providing users with accounts receivable automation which in turn helps to improve overall control of cash flow and collection in real-time. The buy adds a notable new area of product offerings for BL who has historically focused on financial close automation and innovation. Entering the AR market shows significant potential for growth, as optimization of cash flow has become increasingly important due to the impacts of the COVID-19 pandemic.

BlackLine also experienced significant YoY revenue growth as a result of new customer wins and an expanded user base. During Q3 of 2020, several enterprise and midsize companies joined the global trend of modernizing finance and accounting operations. A few of BL’s notable new customer wins in Q3 include Dolby Laboratories, Domino’s Pizza UK & Ireland, Nestle and Vimeo.

What has the stock done lately?

Since the acquisition of Rimilia in October of 2020, BlackLine’s stock is up ~14.85%. The firm has illustrated strong growth since March of 2020, however the 14% increase in share price suggests the confidence that the market has in management’s ability to smoothly integrate the new firm into BL as well as an overall positive consensus regarding the value of the acquisition. The acquisition was executed using primarily cash on hand and did not materially impact the Q3 financial results of BlackLine, which suggests that the impressive performance of BL is likely to continue without significant short-term volatility.

Past Year Performance: BlackLine has increased 116.17% in value throughout the past year, with a strong balance sheet and probable revenue growth following the pandemic implying the continuation of  this upward trend. The mean target price currently stands at $102.11 suggesting only ~1% of potential upside. However, Piper Sandler and JMP Securities both estimated a target price of $115 or higher which supports the potential for ~14% upside. The acquisition of Rimilia and the increase in demand for BL’s products driven by the pandemic indicate the considerable probability of continued value elevation in future periods.

Source: FactSet

My Takeaway

BlackLine’s strategic acquisition of Rimilia and continued expansion of their customer base have proven to boost the firm’s performance at an accelerated rate. The timing of the acquisition places the firm at a unique advantage as they are not only able to expand their product offerings, but they are expanding into the AR space at a time which optimization of cash flow is becoming more important to companies during the COVID-19 pandemic. Additionally, the pending change in management does not seem to raise concern for shareholders. These factors indicate that shareholders of BlackLine are likely to continue experiencing growing returns as BlackLine expands their total addressable market through the recent acquisition and the rising trend in the modernization of finance and accounting operations within companies across the globe.

Source: FactSet