The hook of Tyler Laundon’s ad for his Cabot Small-Cap Confidential newsletter is a 1,290% gain over the next three years…
“When your grandchildren ask you how you turned nearly every $10,000 you invested in 2018 into $129,000 in just three years, I want you to be able to say, quite simply: Cabot Small-Cap Confidential.”
And if you’ve got visions of returns like that dancing in your head, and the image of a room full of grandchildren cheering you on, well, how can you possibly be expected to think rationally about an idea?
How about buying a subscription to a $1,400 newsletter? (“on sale!” for $950 at the moment, but you’ll see that $1,400 charge at renewal time)… Would that make you think more rationally about it? Not if you’re most folks — most people spend all their energy after a major purchase trying to justify the price they paid, and to make themselves feel good about what they just bought… your brain knows that thoughts like, “boy that was a waste of money” don’t feel good, and so it tries like heck to avoid them — which might take the form of believing the pitch so fervently that you put lots of money into the stock they tease.
And, of course, the first thing you read about a stock is the most powerful — that tends to form the center around which all of your other analysis revolves, so if you start out with, “I’m gonna make 12X my money,” then it’s pretty hard for even a starkly negative bit of research to make a dent in your expectations or alter your view.
So what does the Gumshoe prescribe? Answers first, then subscribe. If you feel like subscribing and find it to be a reasonable expense, that is. Don’t ever subscribe to a newsletter just to find out a “secret” idea, but visit your friendly Stock Gumshoe, learn that secret, then make your own call. That doesn’t guarantee success, either, but it’s a lot cheaper and it hopefully starts you on your analysis with a somewhat more balanced playing field. Plus, it’s more fun.
Ready? OK, let’s check out the clues and solve your puzzle… what does Laundon say about this secret stock? Here’s another taste of the ad:
“Once you see my complete profit profile, you’ll quickly agree … This Could Be an Easier Double Than Amazon….
“Just like Amazon’s online mega-store revolutionized the retail industry, this small-cap medical juggernaut is doing the same thing for keeping Americans safe.
“It’s been doing just that for the past 16 years.”
OK, so what specifically does the company do?
“The software platform powers apps that help organizations and government entities keep people safe and businesses running. Customers buy the software to lower the risks to human life and the cost of business downtime due to terrorist attacks, active shooter situations, severe weather events, IT outages and cyber-attacks.”
Huh? How does software do that?
Apparently it “collects, aggregates and analyzes data” for threat assessment, and can communicate with people about that threat… including receiving responses from individuals.
He says that the company has sent out “1.4 billion tailored messages” and that they have a lot of notable customers…
“… clients include eight of the 10 largest U.S. cities, eight of the 10 largest U.S.-based investment banks, 24 of the 25 busiest North American airports, six of the 10 largest global consulting firms, six of the 10 largest global auto makers, all four of the largest global accounting firms, four of the 10 largest U.S.-based health care providers and four of the 10 largest U.S.-based health insurers. The average number of products per customer is around two and growing.”
And that’s about all we get by way of clues… so what’s the stock? The Mighty, Mighty Thinkolator had to chew on this one for a few minutes, but it’s still early in the day so the neighbors weren’t too irritated by the noise… and thankfully we got a nice, clean answer out the other end: This is Everbridge (EVBG).
I’ve never looked at this stock before, but here’s my first impression: It’s high margin, it’s expensive, it’s growing pretty fast, and it’s not profitable.
It’s an interesting and pretty sticky business, though, if they manage to take control of the market without any meaningful competition — mostly because their core customers are presumably very large businesses and governments who need to be able to reach people quickly with emergency alerts and status updates, and often need to do so within just a specific geographic area (for things like power outages, public safety alerts, natural disasters, etc.).
You can see the company’s basic info (from their perspective, of course) in their investor presentation that they made on their analyst day over the summer — the company has not changed dramatically since then — but the basic gist of “what they do” is this, pulled from their website:
“Everbridge, Inc. (NASDAQ: EVBG) is a global software company that provides enterprise software applications that automate and accelerate organizations’ operational response to critical events in order to keep people safe and businesses running faster. During public safety threats such as active shooter situations, terrorist attacks or severe weather conditions, as well as critical business events such as IT outages, cyber-attacks or other incidents such as product recalls or supply-chain interruptions, over 4,200 global customers rely on the company’s SaaS-based Critical Event Management platform to quickly and reliably aggregate and assess threat data, locate people at risk and responders able to assist, automate the execution of pre-defined communications processes, and track progress on executing response plans. The company’s platform sent over 2 billion messages in 2017 and offers the ability to reach more than 200 countries and territories with secure delivery to over 100 different communication devices. The company’s critical communications and enterprise safety applications include Mass Notification and Incident Communications, Safety Connection™, IT Alerting, Visual Command Center®, Crisis Commander®, Community Engagement®, and Care Converge™, and are easy-to-use and deploy, secure, highly scalable and reliable.”
There are all kinds of systems that they sell, with different price points and customers — from a school district that wants to alert everyone to snow days, to an entire country that wants to be able to issue immediate alerts to all its citizens and visitors for terrorist attacks or natural disasters. They seem to be trying to focus on building more of a “platform” of products under “Critical Event Management” to get more of their large corporate and government customers to upgrade to a fuller suite of services from Everbridge — probably because there’s more competition among regional notification and alerting services and apps, but no other large multinational players who can provide a thorough management system for all alerts and “event management” needs (I just checked and there are a lot of towns that contract with Everbridge near me, but my local government, for example, doesnt’t use Everbridge — it seems they just piggyback on the Blackboard emergency notification system that they have for the school system to alert us to weather outages, road closures, etc).
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At least, that’s how they seem to position themselves — maybe there are other competitors they don’t like to talk about, I don’t know, but this is the competition slide from their investor presentation:
The strategy seems to be focusing on more large customers, including the federal government (they already have a few nations as customers, primarily in Europe), and on upselling their large customers (they’ve gone from two products a few years ago to ten now, and are focusing on that “event management” platform to integrate them) — which seems to be working to at least some extent, they went from having four $100,000+ deals on the books in early 2017 to having 19 in the first quarter this year.
And they’ve been ramping up their customer base, though part of that has been through acquisition (they brought on a lot of European customers when they acquired the alert provider UMS earlier this year), so according to their last quarterly press release they have 4,267 global enterprise customers… we don’t really know what the breakdown is, presumably they have lots of smaller municipalities and companies that purchase just a limited messaging capability like their Nixle product for $1,000 or so and not the full suite of products, but across the company that would mean their annual revenue averages about $34,000 per customer.
I think their upselling strategy sounds pretty solid, and expect that they will probably be able to maintain something close to the 95%+ retention that they’ve enjoyed among big customers, but there is the threat of constant competitive pressure — there are at least dozens of companies building systems or offering similar-sounding services to Everbridges at what seems to be pretty substantial scale, from other software roll-ups like Aurea to bigger companies like Blackberry or telecom providers like AT&T and Verizon who have built or acquired alert systems, though I didn’t run across any pure-play publicly traded companies, at least, that seem to be as focused on building an integrated crisis and event management service as Everbridge.
So… go forth and researchify, dear Gumshoe readers, and let us know what you think — is Everbridge unique and poised to be dominant? Are there too many competitors for your comfort? Think they’re cheap based on their growth potential, or too expensive? Have any experience with Everbridge or their competitors?
The Wall Street analysts have weighed in told us to expect revenue growth of about 25% next year and 20% the year after, growing ever closer to profitability… and the company itself says they’re essentially cash-flow positive now with “adjusted EBITDA” turning green in recent quarters (essentially, that means they’re profitable if you ignore the cost of their acquisitions and share-based compensation). So they shouldn’t need to raise money anytime soon… and everything depends on their ability to acquire and upsell more customers.
And, of course, the stock price depends on the market’s taste for growth stocks — EVBG has fallen about 20% since its peak in September, and, like a lot of other smallish momentum growth stocks, the shares are back to about where they were at the beginning of the summer. It’s still a bet on future growth, paying 10X revenues for a company that isn’t yet profitable, but, well, growth is what stock investing has mostly been about for the past decade. If the market shifts to caring more about current cash flow and earnings, then Everbridge could be in trouble… if we continue to dream about better days ahead, then relatively small companies with 20-30% organic revenue growth potential and an ability to grow without further cash infusions will probably be pretty attractive.
Sound like your cuppa tea? Not so much? Let us know with a comment below.
Disclosure: I own shares of Amazon among the stocks mentioned above. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.