One Competitor of Nitro is Nemetschek Group, who owns Bluebeam Software. Bluebeam is the industry standard in the construction industry for marking up pdf documents.
Bluebeam has far greater functionality than Nitro software, and is the market leader in the construction industry. If Nitro was to turn their niche into a profitalbe / attractive one, Nemetschek Goup could develop a cheaper, dumbed down version of their software to compete in this space.
Nemtschek Group's Build Group (Bluebeam Group) grew revenue 25.6% last year to $177.7 M EURO, with EBITDA growing 47% to $$61.5 M EURO.
Nemtschek Group's EV/S is around 13 (with 20% growth rate, +20% profit margin) vs Nitro at 9 (with 10% growth rate, -20% cashflow).
A little taken aback by how much Nitro has ripped since a quarterly report that added nothing anyone who had been following the business didn’t already know, aside from inflated cash outflows and an anomalously lower cash reserve. 50% or thereabouts since I gave it a yeah, nah. So the below is probably written out of stonk-envy.
Nitro's has a small problem, to my first-level mind: it's a loss-making growth company that doesn't grow as much as bigger, proftable competitors. Its own projected growth in 2020 is about 13% and this is in keeping with the past rate, yet it says its TAM is meant to be growing at 10-11% a year and its competitors DocuSign and Adobe have been growing revenue by 20-40% in recent years off much higher bases. Some of this discrepancy comes from Nitro's belated shift to ARR (50% in 2020 against 95-97% for the others), but still. I guess even if you build the better mousetrap, which at times in the past Nitro appears to have done, it’s tough going when your main competitor practically invented the mousetrap and has vastly more employees working on mousetrap R&D. That’s probably why Nitro spends a whopping 20-25% of revenue on R&D, but Adobe and DocuSign aren’t far behind there either.
The good news is that the gross margin for subscription revenue jumped from 86% in 2018 to 91% in 2019 against a static 89% for perpetual revenue. And net revenue retention is at 127% – above Adobe and DocuSign, in the 110-120% range, and a sign that clients really like its products – but this has been sliding. Given the multinational size of Nitro’s current clients and the slowly tapering growth in new ones, this perhaps could be higher. 90% customer retention is very nice but Adobe, and I think also DocuSign, have better. Stickiness doesn't matter as much in a sticky market, and for an unprofitable insurgent it can mean getting stuck.
Nitro has a good product and my workplace has used it for a long time. That quality makes the stock worth watching. But it's a good product in a market awash with good products sold by giant competitors. Personally I’m waiting to see whether revenue growth can start to break out and leave SG&A growth behind (the latter rose about 20% last year, but this should steady). I'm also interested in what Nitro Analytics can deliver since the CEO has talked this up specifically without much detail. But the company has so much cash (net US$40m) these things can take a few years to play out.
Nitro released a quarterly update today. It appeared to be good news and the share price got a decent bump. In this market that is probably overdue as Nitro is a SaaS stock trading on a vaguely sensible EV/Revenue multiple. With more or less AUD50-60m coming in the door last year and losses only more or less 10% of that Nitro's investors must have been wondering why the market cap wasn't cracking $1bn. The price-to-2035-EBITDA multiple looks great.
A few observations (figures are quoted from memory and might be off):
- Quarterly revenue was 11% up from last year. This seems promising until you realise their own prospecus late last year said their TAM has a CAGR of 11%. In other words, they didn't outperform the market. But their business is mostly holding up during the pandemic, which is probably the main reason for today's movement.
- In fairness, Nitro's revenue growth is held back by trying to grow ARR. Nitro is interesting in part because it is way behind much bigger competitors Adobe and DocuSign in its ARR percentage but catching up fast. In 2020 ARR is supposed to go from 37% of revenue to 50%, or c. USD20m (Adobe and DocuSign are 90%+, I think). It's on track for this.
- One of Nitro's advantages is net recurring revenue: 127% last year compared to DocuSign's c. 115%. This means revenue growth from customers is 27%. But that figure was down quite a bit last year, as was the customer retention rate (90% last year compared to its competitors', I think, 95%+). They didn't go into detail but apparently this is still slipping.
- Cash was at USD40.5m, against USD44m net cash all the way back in…December (USD47m total). Am I missing something?