Join us 12:30pm on Monday February 12th as we go through the setup on LOGM ahead of EPS, 2018-2019, as well as the implications of the Jive acquisition announced on 2/8.
Participating Dialing Instructions:
Toll Free:
Toll:
UK: 0
Confirmation Number: 13676679
Our view of the setup:
- Jive is the right product + acquisition to help accelerate LOGM organic revenue growth rate in 2019-2021
- In the meantime, the re-pricing strategies are good for 4Q17-1H18 revenue and FCF
- But the implied decel in GoToMeeting is not so good, and will weigh on the near term revenue growth rate. A turnaround in the direction of GTM growth rate (from contraction to expansion) is entirely plausible thanks to new features, more marketing spending, positioning, and experimentation with go-to-market, but weighted to 2H18-2019
- The FCF setup is mixed with true FCF almost $50m below current 2018 guidance due to the company preferring to guide on non-GAAP + adjusted basis (and few understanding that). Upside in fundamental FCF is possible thanks to pricing upside + billing conversion (we quantify this for you in detail). Risks to FCF in 2018 include rising cash taxes and rising capital intensity (to 7-8% for standalone Capex).
In sum, we remain in the ‘sorta like’ this company category on account of great internal product management, eroding value of core technologies, constant masking of KPI & revenue categories, and cheap valuation.
The addition of Jive gives LOGM a new category in which to pursue revenue growth. Jive has 20k customers at an average revenue of $4k per customer (annual) out of 550-600k total potential customers in the SME UCaaS TAM (in the US alone). Jive adds a sustaining revenue growth CAGR that also helps with core C&C go-to-market. We like the addition of an offense category. We don’t think it will carry the day until it matters.
What you will learn on this call:
- How Jive fits into UCaaS product categories
- Problems and opportunities with Jive
- Problems with GoToMeeting
- Opportunities with GoToMyPC
- Holes in current FCF guidance
- Pluses and Minuses facing FCF in 2018-2019
- How big is the customer churn problem
Bottom line for the stock: the addition of Jive raises the sustainable growth rate for the company in the out-years (2019-2020) from ~4.5% to 6%+. Consider that at current $6 in FCF/share could be worth ~$110 fair value on 5.5% FCF yield (inverse of growth rate) but at 6%+ the same math gets $150, and our bias of $170 given we think the growth rate moves all the way up to 6.5%. Translation: all other factors neutralized, it can be good for the stock when Jive really matters.
What happens next?
To get a clean setup we need an estimate cut on standalone LOGM revenue and some disappointment to register that FCF guidance is partly fluff, and that FCF trajectory is flat to down in 2019.
We have LOGM on the Long Bench and it stays there until we see a clear path, one way or the other.
