We were looking for an entry point on LOGM and today’s stock price hints in that direction but we have to think through what will cause the stabilization in the GoTo property. After gaining share against the Citrix GoTo business for ten years in one form or another, did they really think turning it around would be easy? How does one defend the stock here with a big step down in FCF (GAAP down to 315MM) and capex probably needing to go back up next year? More analysis is required before stepping in here.
What went wrong:
- When it came to renewals of GoToMeeting: 1) LOGM was too aggressive in the conversion of users from monthly to annual contracts, 2) surprised customers with changed terms & conditions, and 3) created barriers to the auto-renewal process. This all resulted in C&C renewal rates falling 350 bps and the resignation of the product segment’s GM. The brunt of the hit came via revised full year revenue guidance, which dropped 28MM (70% of which relates to the GoToMeeting execution problems, the remainder to FX).
- Company was slow to deliver product enhancements (presumably referring to the chat functionality in GoToMeeting) and even slower to fix basic problems relating to the product’s voice quality and connect time
- Private competitor Zoom offering greater contract flexibility at more competitive prices
- Calling out JiveC alone as one of the main growth drivers of the business misses the entire point about creating a much more feature rich, dynamic UCaaS product (in JiveC+GoToMeeting)
Did anything go right?
- Management called out success in new and add-on sales in C&C segment, indicating that without the execution issues, the products remain competitive
- Better than expected performance in Jive with management adjusting full year contribution expectation from $71MM to $75MM
- Improved retention in identity mgt (which sits below company average retention) and hint of new product launch in core LOGM Pro arena heading into 2019
Bottomline: We have been looking for a time to get Long but this mis-execution requires further thought as the company's largest product asset deteriorates, and the company seems to have been on vacation in 2Q18 while it happened.
More to come.
