By: Michael Vidovic, 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. (NYSE: BL) is a
cloud-based software platform focused around automating common accounting and
financial processes through the following 4 solutions: reconciliation
management, financial close management, intercompany hub, and insights.
•
BlackLine has failed to be profitable thus far, despite outperforming revenue
growth each quarter.
•
The company operates globally, and only recently attained their first customer
in Hong Kong. Europe also continues to show demand above expectations.
•
Tammy Cole has been hired as a Chief Strategy Officer along with ex-CEO of
SolarWinds, Kevin Thompson, though their contribution has yet to be fully seen.
•
The intercompany hub segment showed very disappointing growth in Q2 paired with
unfavorable insider share selloffs, which have hurt the stock sizably in the
last 6 months.
Key points: APAC remains the geographic for new growth,
though the company has only a few customers in the area. However, each quarter
the company has been able to attain first customers in various countries in the
region. The situation looks favorable given BlackLine’s impressive customer renewal
rate assuming the company can continue to lock in further customers in the
surrounding area. Once BlackLine gains an influence in east Asia though, the
growth outlook should notably improve.
BlackLine
began by selling mainly to large enterprise players, and has only recently
began penetrating the middle market. Many of these companies still do their
accounting and financial close processes manually, and it seems only a matter
of time until BlackLine is able to grab these low-hanging fruits.
BlackLine
continues to operate in a low competition environment, and has stood to benefit
from being the only company of its kind. However, if the company is able to
scale successfully, the market will likely see competition arise given just how
large the market is.
New
management has been cited to be a strong source of growth, though expectations
seem blown out of proportion, and may only serve as minor improvements for the
company.
What has the stock done
lately?
BlackLine
IPO’d in late 2016, and saw the stock rise 40% by July of 2017. However, the
stock then dropped 25% following a weak Q2 performance, and has been relatively
stagnant ever since. The company is taking longer than expected to generate a
profit, and concerns to the contrary have mounted since.
Past Year Performance: BL has grown by 22% over the last year, but
the company remains disappointingly far from being profitable. The primary
contributors to the stock’s performance in spite of profitability setbacks have
been the company’s very strong gross margins and high renewal rate at 98%. The
company has sustained high top-line growth, and the potential market remains
daunting in terms of size.
BlackLine 1 Year Performance
Source: FactSet
My Takeaway
The
investment thesis for BlackLine remains as strong as ever, and the potential
upside on the company has not changed. With such a high renewal rate, the
company has shown that once in practice, the solutions are invaluable, and the
problems seem to stem from unhappiness surrounding the company’s profitability.
The TAM remains enormous, and a lack of real competition puts the company in a
strong light in terms of being a growth stock.
