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Will Paycom be Acquired?

Posted on Thursday, Aug 8th 2019

According to a Research and Markets report, the global human capital management (HCM) market is expected to grow 9% annually over the next few years to $29.9 billion by 2023. The HCM industry includes software solutions for core HR, payroll & compensation management, performance management, learning, talent acquisition, workforce management, and benefits administration. The industry growth is expected to be fueled by the continued adoption and implementation of SaaS-based solutions.

Paycom’s Offerings
Oklahoma City-based Paycom (NYSE:PAYC) was founded in 1998 by Chad Richison as an online payroll services provider. Within a few years, the company had expanded operations to become a HCM player that focused on providing a comprehensive, cloud-based solution that helped organizations manage an employee from recruitment to retirement. Its solution provides employers with easy access to their payroll data and helps organizations by providing payroll services on a single application that lowers labor costs and drives employee engagement. Its offerings include talent acquisition, talent management, time and labor management, payroll and providing other HR services.

The company continues to release upgraded products and invest in technology to drive growth. Earlier this quarter, it released the Direct Data Exchange or DDX for all of its clients. The DDX is a highly differentiated enhancement that promotes employee self-service and reports all data changes made directly into the HCM database by employees. It also tracks any duplicative data changes that may have been input by other client representatives, thus helping organizations manage and reduce duplicate workloads.

Paycom believes that the DDX can accelerate a company’s digital transformation by empowering employees to self-manage their information by connecting directly with their HR database. The analytics generated by the solution can help businesses drive higher returns from their HR investments by monitoring and tracking usage trends real time.

Keeping in line with the self-service focus, Paycom recently also released Ask Here, which gives employees a direct line of communication to ask work related questions of their company representatives and receive timely answers. The solution will help ensure that common issues are addressed, actions taken, and employees don’t have to search for the right person to reach out to.

Paycom’s Financials

Paycom’s initial funding details are not known. But the company went public in 2014 when it raised $100 million by selling stock at $15 apiece at a valuation of $762.2 million. The stock has seen significant growth ever since.

Paycom recently announced its second quarter results that were impressive as well. Revenues for the quarter grew 31% over the year to $169.3 million, ahead of the Street’s forecast of $164 million. By segment, recurring revenues grew 31% to $166 million and implementation revenues grew 51% to $3.3 million. Net income grew 37% to $48.8 million. On an adjusted basis, it reported an EPS of $0.75, which was also better than the market’s estimated $0.71.

Paycom expects to end the third quarter with revenues of $170-$172 million, which were also better than the analyst estimates of $168.2 million. It expects to end the year with revenues of $720-$728 million, compared with the Street’s estimate of $719.9 million.

Paycom is one of the fastest growing companies within the HCM space. For the second consecutive year, it was ranked among the top five of the fastest-growing company on Fortune magazine’s 2018 100 Fastest-Growing Companies. The company is still fairly small compared with other HCM players such as ADP and Workday. For comparison, ADP had ended last year with revenues of $14.2 billion and a net income of $2.3 billion. SaaS player, Workday recently reported its quarterly results that saw revenues come in at $825 million but a net loss of $116 million. Workday is looking to end the current year with revenues of more than $3 billion. But given Paycom’s success, I won’t be surprised if companies like ServiceNow or Oracle look at it as a potential acquisition target. Adding Paycom to their portfolio will significantly add to their cloud-based HCM presence.

Its stock is trading at $225.31 with a market capitalization of $13.2 billion. It touched a high of $246.85 in July this year. Like other tech stocks, Paycom’s stock had fallen to a year low of $107.46 in December last year.


Photo Credit: Trending Topics 2019/Flickr.com

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