Posted on Wednesday, Aug 8th 2018
According to a recent report, the global accounting software market is estimated to grow 8.6% to be worth $11.8 billion by 2026, North America being the largest contributor to this growth in terms of revenue. The growth in the developed markets is expected to be driven by the adoption of mobile devices and movement to the cloud among organizations.
Cloud-based accounting software maker BlackLine (Nasdaq:BL) recently announced its second quarter results that surpassed market expectations. Revenues for the quarter grew 32% over the year to $55.5 million, ahead of the market’s estimate of $53.66 million. It ended the quarter with non-GAAP EPS of $0.01, ahead of the market’s forecast of a loss of $0.01 per share. This was BlackLine’s fourth consecutive quarter of profitability on an adjusted basis. On a GAAP basis, the company recorded a net loss of $8.5 million, which was better than the loss of $9.1 million reported a year ago. It is yet to turn in profits on a GAAP basis.
By segment, subscription and support revenues grew 34% to $53.05 million and professional services revenues grew 12% to $2.41 million.
Among other metrics, the company added 105 net new customers in the quarter, ending with more than 2,400 customers for the quarter. It grew its user base to just under 210,000 users and recorded a dollar-based net revenue retention rate of 111% during the quarter compared with 110% a quarter ago.
BlackLine forecast revenues of $57-$58 million with a non-GAAP breakeven for the current quarter. The market was looking for revenues of $57.6 million for the quarter with a net loss of $0.06 per share. BlackLine revised its annual forecast upwards. It now expects revenues of $224-$227 million compared with an earlier estimate of $222-$225 million. It also increased its earnings estimate to $0.01-$0.03 compared with the forecast of $0.02-$0.00 released a quarter ago. The market was looking for revenues of $226.1 million with an EPS of $0.00 for the year.
BlackLine’s Growth Drivers
BlackLine’s product has received strong recognition from the market. For the second year in a row, Gartner announced it as the leader in the Magic Quadrant for Cloud Financial Close Solutions. Oracle and Workiva are close competitors for the company as they were both ranked very close to BlackLine in the quadrant.
According to a report on WiseGuyRerports.com, the market is expected to grow 7% annually over the next five years with Asia Pacific markets of India and China witnessing the biggest growth in the industry.
BlackLine is realizing the importance of these international markets to deliver growth and has invested in its sales force to target these markets. It recently appointed two sales executives to focus on these markets which it believes is severely under-penetrated. Mark Woodhams has joined BlackLine from Netsuite and will handle sales for the EMEA region. During the quarter, EMEA region contributed 21% of its revenues compared with 19% a year ago. BlackLine also added Terry Smagh, a former IBM executive, to lead the fast-growing APAC region.
Questions for BlackLine’s Board
How does BlackLine plan to address the growing opportunity that the SaaS sector has to offer. I would like to know specifically about its plans to address competition. Not only is the industry seeing strong competition from big names like Oracle and Workday, but other start-ups like FloQast are also rapidly climbing the Magic Quadrant grid. How does BlackLine expect to beat competition while remaining financially stable?
Over the past few years, BlackLine has been partnering with SAP, which competes with Oracle. Its 2016 acquisition of Runbook brought it closer to SAP than ever before. Runbook was a Europe-based provider of financial close and automation solutions to the SAP market and its acquisition complemented BlackLine’s existing solutions by merging financial quality assurance with financial automation. But I would like to know if BlackLine is now poised to become a SAP acquisition target? Adding BlackLine to its arsenal will definitely help SAP in its fight with Oracle. Additionally, the merger will help BlackLine tap into SAP’s customer base – a clear win-win for both.
Its stock is trading at $49.04 with a market capitalization of $2.59 billion. It had touched a 52-week high of $49.70 in June this year. It has recovered from the low of $28.79 that it had fallen to in August last year. The stock had listed at $17 each in October of 2016.
More investigation and analysis of Unicorn companies can be found in my Entrepreneur Journeys book, Billion Dollar Unicorns.
This segment is a part in the series : Billion Dollar Unicorns
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