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Sps Commerce Focusing on Scalability and Strength

Sps Commerce Focusing on Scalability and Strength

On Tuesday, SPS Commerce hosted its first analyst day as a public company. The focus of the presentations centered on the scalability, strength, and competitive differentiation of the company s network of retailers, suppliers, logistics providers, and partners as well as the company s growth opportunities, which we believe will enable SPS Commerce to continue to grow recurring revenue around 20% organically. The company s total available market with existing and potential suppliers is around $2 billion, placing SPS Commerce at 6% penetration. The company has about 20,000 recurring revenue customers out of a potential of about 200,000.

However, we also believe that SPS Commerce should be able to increase its average revenue per customer from the current level of $5,220 to around $10,000, driven by customers increasing their number of connections and SPS Commerce signing larger customers (especially given the channel sales focus on supporting large software vendors, ISVs, value added resellers [VARs], and systems integrators [Sis]). We believe that the continued investment in the channel sales teams will drive the addition of larger customers. The channel sales group was launched in 2009 and accounted for 16% of new business in 2013.

We believe that channel sales could grow to represent more than 25% of new business as SPS Commerce develops relationships with larger SIs and VARs, as well as deepening relationships with existing partners, such as NetSuite (N $76.88; Outperform). The company has the opportunity to further increase its wallet share from clients through selling additional products, such as the analytics solution. SPS Commerce has seen nice traction with its analytics product, which was introduced in 2009 and accounted for 15% of new business in 2013.

Customers using two products have essentially doubled the company s ASP, implying that the company s TAM for the combined integration and analytics solutions could be in excess of $4 billion. Although it is unreasonable to assume that all 200,000 potential suppliers will purchase one or both solutions from SPS Commerce (or a competitor), this is still a substantial opportunity for a market with a small number of competitors where SPS Commerce is the dominant vendor.

Sps Commerce Focusing on Scalability and Strength

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