SHSP - SharpSpring

[Tompety03]

I have not dug into this as much as I would like, but saw the write-up by Greenhaven and noticed it has been crushed (down 50% ~$75mm market cap or 3x ARR).

 

Digital marketing agencies are scrambling right now and the industry will take a big hit in the short-term, but SHSP may be better positioned than competitors in a downturn.  Their contracts are shorter than competitors, but are ~75%-60% less expensive, so people may trade down to save costs / limit their commitment.  Probably hard to stomach an annual $50K Pardot subscription right now.

 

I've spent very limited time on this - was thinking now may be a good time to buy smaller software companies that have traded down, but have long runways.

 

Any thoughts are welcome. 

 

Thanks,

Chris 

[KJP]

I have not dug into this as much as I would like, but saw the write-up by Greenhaven and noticed it has been crushed (down 50% ~$75mm market cap or 3x ARR).

 

Digital marketing agencies are scrambling right now and the industry will take a big hit in the short-term, but SHSP may be better positioned than competitors in a downturn.  Their contracts are shorter than competitors, but are ~75%-60% less expensive, so people may trade down to save costs / limit their commitment.  Probably hard to stomach an annual $50K Pardot subscription right now.

 

I've spent very limited time on this - was thinking now may be a good time to buy smaller software companies that have traded down, but have long runways.

 

Any thoughts are welcome. 

 

Thanks,

Chris

 

I looked at this several months ago.  I could not reconcile management's assertions in their presentations with reported financials and churn is higher than I anticipated it would be, though I have no industry experience so my beliefs going in weren't based on much of anything.  Management's claims that the high churn isn't an issue because the agencies that stick around grow rapidly, so the churn is simply sifting the wheat from the chaff.  But again, I could not reconcile the cohort aging profiles in management's presentations with the reported financials. 

 

Also, I encourage you to look closely at management's presentations.  When it suits them, they give you agency-only metrics, but at other points they appear to be giving all-customer metrics (including direct customers) without clearly identifying the difference.

[SnarkyPuppy]

How does this business operate as a going concern without access to capital markets?  They are reliant on issuing equity and or debt to continue to fund their growth.  Without growth, the valuation is extremely high.  No?

[Tompety03]

They have $12mm in cash at the end of the year - I assumed in a downturn (in business and cap markets access), they can lower opex (developers/tech) while still maintaining the product for current customers and then turn that back on when things improve and the long-term market opportunity will still be there.  So to your point, it is expensive for short-term growth, but that will change if the economy/market stabilizes.  Even in a flat economy, businesses will shift to more of this type of software.

[SnarkyPuppy]

They have $12mm in cash at the end of the year - I assumed in a downturn (in business and cap markets access), they can lower opex (developers/tech) while still maintaining the product for current customers and then turn that back on when things improve and the long-term market opportunity will still be there.  So to your point, it is expensive for short-term growth, but that will change if the economy/market stabilizes.  Even in a flat economy, businesses will shift to more of this type of software.

 

I think you're making an implicit bet that many of their clients (digital marketing agencies) as well as their clients clients (businesses which use the digital marketing agencies) come out the other end of this economic event unscathed while simultaneously paying for a decent amount of future growth which requires capital spend, all while SHSP is bleeding cash and only has 2-4 quarters of liquidity left.