Today we have a very speculative idea: take stock of the cloud service Workiva (NYSE: WK) to capitalize on the growth of his business.
Growth potential and validity: 20% behind 14 Months; 10% per year for 10 years.
Why stocks can go up: because this is the cloud sector, everything grows there.
How do we act: we take shares now by 90,99 $.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
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And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark: as with the investment idea as a whole, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
What the company makes money on
It is a cloud-based enterprise communication software. The company has quite intelligible video on her youtube channel, which can be viewed by everyone who wants to delve into technical details, and we'll get straight to the point here.. According to the report, revenue is divided into the following segments.
Subscription and technical support — 84,2% proceeds. This is actually access to the company's platform for a fixed fee.. Segment gross margin — 83,27% from its proceeds.
Professional services — 15,8% proceeds. These are various software customization services., client consulting, etc.. Segment gross margin — 27% from its proceeds.
In the US, the company makes 94% proceeds, the rest is in some unnamed countries. The company is currently unprofitable.
Company customers by industry in percent
| IT | 13,35% |
| Finance | 12,13% |
| Consumer goods | 10,94% |
| Industry | 10,7% |
| healthcare | 10,08% |
| Banks | 9,97% |
| Insurance | 6,76% |
| Energy | 6,71% |
| The property | 4,52% |
| Housing and communal services | 4,19% |
| Materials (edit) | 4,16% |
| Other | 6,49% |
IT
13,35%
Finance
12,13%
Consumer goods
10,94%
Industry
10,7%
healthcare
10,08%
Banks
9,97%
Insurance
6,76%
Energy
6,71%
The property
4,52%
Housing and communal services
4,19%
Materials (edit)
4,16%
Other
6,49%
Arguments in favor of the company
Something about the clouds. We already had a lot of ideas about cloud computing and enterprise software, for example Dynatrace. Therefore, we will not repeat ourselves here and simply say, that this sector was growing even before the pandemic, and thanks to the coronacrisis received additional acceleration. So Workiva investors can hope for the growth of the company's financial performance. Well, that fact, that the company has a small capitalization - only 4.55 billion dollars, - will also help. It will be very easy to pump stocks by the forces of the crowd, which is most often interested in the "promising sector". Let's remember, for example, how Coursera shares flew by 23% per day.
Good report. Last week, the company reported good results for the last quarter.: revenue compared to the same period a year earlier increased by 24,2%, and the loss decreased from -10.418 million dollars to -7.324 million. Basically, that fact, that Workiva shares have already grown by 126,79%, already considered the likelihood of recent good reporting, but I think, that there is still room for growth here.
Diversification. None of the company's clients, according to its annual report, does not give more 1% from proceeds, and 10 the largest customers in total give only 5% proceeds. It's very nice, because in this case, Workiva has the opportunity to dictate its terms to customers. And the wide diversification of the company by industry minimizes the risks of the negative impact of a potential collapse in one of them.
Komsomol members will be delighted. We already had a huge article about the growing popularity of ESG investing. And how do you remember, one of the main problems there was indicated the lack of the possibility of an organized collection and analysis of information on ESG: everyone counts metrics as he wants and everyone writes, in fact, whatever he wants. Workiva recently released a software update, which allows you to automate and facilitate the collection of data on ESG for user companies. Even if this feature is not actively used, the probability is still high, that the company's shares will be pumped up due to its "ideological usefulness". Sounds insanely speculative, but given the hype in this area, this is very relevant.
Can buy. Considering all of the above advantages, Workiva is an attractive takeover target. The capitalization of the company is not very large, and the level of revenue retention, according to the report, 109,5%. The last moment means, that the company is squeezing enough revenue from the existing customer base to compensate for the loss from the loss of some users. Considering the company's focus on a subscription model, this means, that the company's finances are more or less predictable. And after the purchase, optimization and integration of Workiva by a larger corporation, it will be possible to make a more or less profitable business out of the company.
What can get in the way
Unprofitableness. Shares of unprofitable companies are by definition volatile - this must be understood and forgiven, as well as prepare for, that Workiva quotes will shake. And losses are a problem due to two points. The company is motivated to issue new shares, what can cause the value of already issued shares to fall, if there is not enough demand. And the specter of bankruptcy is always on the horizon.
Competitors. The company has a lot of competitors: Trintech, Xactly, CaseWare, BlackLine, Bottomline Technologies и Workday. And this does not allow her to greatly increase the margin.
What's the bottom line?
We take shares now by 90,99 $. And then there are two options:
- End, when will the stock be worth again 110 $, which is less than their historical maximum 111 $, achieved in February 2021. Considering all the positives, would not be too bold to expect, that we will reach the desired level for 14 Months.
- Hold next shares 10 years in the hope of more significant growth, aware of the possible risks, that entails holding shares in a loss-making company.
