THE HEDGEYE EDGE
Since being founded in 2001, BlackLine (BL) has become a leading provider of cloud software that automates and controls the entire financial close process. The company’s vision is to modernize the finance and accounting function to enable greater operational effectiveness and agility.
BlackLine’s Finance Controls and Automation platform is used by more than 196,000+ users in over 150+ countries around the world. Headquartered in Los Angeles, California, with offices in Australia, the United Kingdom, Germany, and throughout the United States, the company aims to transform the way accounting and finance teams work to drive more accurate financials and more effective organizations.
Long-Term View on BlackLine
Love it. This is a large new market. DiY (i.e. manual) is always the enemy in large new (software) markets. BlackLine is 1 of 2 or maybe 3 players providing accounting software that automates ledger closing process and significantly decreases the amount of time and manual labor in this process. The company is ~1% along a penetration curve that realistically will take a very long time to conquer but will make BL a much more valuable company down the road, notwithstanding the short-term pluses and minuses.
The road from 1% to 3% penetration is often long and arduous, no different in this case as they must change the behavior of target customers from using a manual approach to relying on software, as well as create a budget line item that did not previously exist.
Still, small disruptors are always told that a large company will crush them. If a company like SAP does enter and the market goes to 30% penetration but SAP takes 1/3rd of the market, isn’t that still crazy bullish for BlackLine?
We pay close attention to market penetration curves; TAMs are often ill-defined either by a paid consultant, or a broad-strokes prognostication, or done as a rough back of the envelope napkin math by companies themselves. In this case, BL is so small, and the problem they solve is so large and so manually driven (historically) that for now we think we will err on the side of management’s Napkin.
ONE-YEAR TRAILING CHART
