There’s a new version of Stansberry Venture Value’s big “SaaS” pitch making the rounds recently, similar in many ways to the previous versions that I looked at last February and September… so I guess it’s time to take another look and see if the same stocks are still being teased, and whether we can answer any reader questions.
Venture Value is a higher-end service, being sold today for $1,897/yr (no refunds, and they note that this is “on sale” and won’t be offered again at that price… though I’d take that with a grain of salt, it is the same price they offered back in February of 2020).
Here’s the lead-in:
“Before COVID-19, these stocks returned 66% per year on average. Starting now, we predict they’ll soar much higher
“While the economy is still struggling to recover, one group of stocks has been hit by an unexpected wave of wealth.
“And one stock is poised to absolutely skyrocket ahead of the rest – beginning immediately.”
I won’t bore you too much by going through the very long spiel about the general idea of “tech royalties” and “cloud SaaS” companies — that is essentially identical to what they’ve been pitching for a year or so, the notion that we’re still moving rapidly from an enterprise software world (where you buy software) to a SaaS world (where you subscribe to software), and that this is a hugely compelling opportunity for the SaaS companies who can sign up customers for this perpetual stream of cash flow. No argument there, software ies eating the world… and subscription software is both the most lucrative way to sell it and the most adored business model among investors.
That hasn’t always been true, but since Adobe (ADBE) figured it out and made their big transition to the “Creative Cloud,” and proved that it would work (which many doubted), pretty much everyone has been trying to make the switch.
So you can check that original story we ran last February if you want more of the background — that’s basically the same, with just some updated numbers this time (back then they said only 70 SaaS companies had gone public and that these companies had averaged 56% gains per year, now it’s up to 80 and 66%, for example, presumably thanks to the extraordinary year that SaaS companies enjoyed in the rapid pandemic “work from home” transition).
And the latest version of this ad, now dated January 2021, does include the notion that the pandemic accelerated our digital transition, and was a huge catalyst for software companies… but also indicates that the Venture Value folks think this is going to continue:
“In the midst of paralyzing fear and uncertainty…
“It’s our belief that the pandemic has indirectly unlocked what is likely the single best way to see extraordinary gains in the market today.
“That may sound counterintuitive. Every investor I know suffered when the markets crashed.
“And while stocks continue to rally, the overall economy is struggling to recover, as new surges and closures spread across the country.
“But this one tiny corner of the market – again, which only consists of 200 companies TOTAL – has been hit by a wave of wealth that could send these stocks sky-high in the coming months.”
That’s another update, by the way, a year ago they said this sector consisted of about 150 companies… no surprise, I guess, success begets new entrants probably more quickly than those companies are eaten by each other (like Salesforce.com’s recent deal to acquire Slack).
And then the pitch about the “hidden” SaaS stocks that they’re teasing this time:
“But if you want to see the biggest potential gains… it won’t be in the SaaS stocks that are already hot or well known.
“In fact, the market’s been so frenzied since the crash, that some are starting to look overvalued. So I recommend you be very careful.
“Instead, today, you can learn how to get into these stocks before their astronomical growth.
“These are opportunities we can only detail to a small audience of readers in Stansberry Venture Value. They’re exactly what Porter designed Venture Value for.
“They’re basically the perfect stocks for his long-term, ‘10x’ system. The ones capable of pushing Venture Value’s annual gains past 50% in the coming years.”Are you getting our free Daily Update
"reveal" emails? If not,
just click here...
And they’re now pitching what they say are the “three best SaaS opportunities we’ve identified anywhere in the world.” So that’s where the Thinkolator comes in… anything new there from Brian Beach and Michael Dibiase, or are these ideas they’ve touted before?
Here’s the pitch for the first one:
“Opportunity 1: The ‘Hidden’ SaaS Stock
“The first and most important of these opportunities is a stock Bryan says is the most exciting discovery of his career.
“A way to get into a SaaS phenom before anyone else realizes what’s going on and drives up the price.”
And the clues…
“Most folks don’t see this as a SaaS company — yet. But that’s exactly what it is….
“… this company also makes a type of hardware used by tens of thousands of retail businesses. A sales terminal, sort of like a cash register.
“This hardware business is important. The company’s prior management team nurtured this business for years. The hardware business never made much money, but it’s reached an incredible level of market penetration.
“Around 60% — among some of the biggest brands in a nearly $300-billion-a-year industry….
“This company’s existing clients have been beating down the door to install and pay for this software, on a recurring basis, forever….
“Clients are practically throwing money at it. And it’s turning them down….
“It is working through a yearlong waiting list… and upwards of 80,000 potential customers for this software.”
And this company is starting to get discovered, we’re told…
“… in the past six months alone, three different Wall Street firms have begun covering the company. This ‘discovery’ process will only continue in the months to come.”
Which means we are pretty sure this is a repeat of last year’s top idea… but they also drop a clue about management:
“Best of all, this company is run by one of the greatest entrepreneurs in the world.
“A CEO that Bryan is thrilled to put his trust in when it comes to growing the business and taking care of shareholders long term.
“(He’s already founded a successful software company, and was an “angel” investor in companies like Uber and Alibaba.)”
So yes, this is again, Thinkolator sez, PAR Technology (PAR). Which is now one of my larger holdings, after I learned about it when researching the first version of this ad a year ago and added to it a few times in 2020. PAR is a longstanding technology company that has gone through a transition, from being largely focused on selling POS terminals to fast food restaurants (the actual hardware, the “cash register”, in which they have huge market share), to being focused on providing the software that runs on those terminals and helps to manage other aspects of the business of restaurants (scheduling, inventory, payroll, payments, etc.). The terminal business remains important both to sustain revenue and to provide an entry into restaurants who might also buy the software — in fact, they just today announced their latest update to the hardware, called PAR Helix.
They were both damaged by the pandemic, in that a lot of restaurants closed or slowed down upgrades because of cash constraints, and were boosted by the fact that restaurants who could fight their way through saw increasingly that their path to profits required drive throughs and a modern POS system that can handle online ordering and integration with delivery providers. I expect to own this stock for a very long time, mostly because I really admire PAR’s new CEO, Savneet Singh, who was on our radar as an interesting guy before he joined PAR’s board and later took over as interim and now permanent CEO, though I did also take some profits on about 10% of my position after it soared last year. Here’s what I said about a month ago in a note to the Irregulars (12/18/20 Friday File):
“Par Technology (PAR) is one of those companies that I struggle with — like The Trade Desk and Roku in some regards. I think it is extremely well-managed, I really like the company, but I find it hard to handle the soaring share price (on no real news) without being tempted to take profits. Somehow, these little companies that feel like secrets you understand better than the market are easier to manage when you feel superior for buying them on bad days… and harder to manage when everyone else jumps enthusiastically on board and drives the shares back up.
“The company is not particularly sexy or exciting — the base of the company is selling the terminals in your local fast food restaurant, along with an odd little business in government technology contracting, and over the past few years they’ve tried to leverage that customer base into a cloud software offering of restaurant management and point of sale (POS) management software and associated services, partly by buying small software platforms like Brink and Restaurant Magic.
“I joked a few weeks ago that it doesn’t seem like they should benefit from both the COVID disaster in the restaurant industry and the reopening of the restaurant industry post-vaccine, but that’s kind of how investors seem to see the story right now. And there is a little logic to that — their customers, the Five Guys and Dairy Queens of the world, did far better than independent neighborhood restaurants, partly because they were always designed for stuff like drive-through and delivery… but Par’s growth potential also depends on them being able to get out there in person and sell and install new systems for the new chains who will emerge and spread around the country.
“What appealed to me instantly when I started looking into the company, almost a year ago now, was the new CEO, Savneet Singh, because I had followed him in the past and found him really interesting and a fascinating investor to follow. And now, it seems to me, the market is also falling in love with Singh a little bit, because the stock price is going bonkers on really no news. Singh was interviewed by Doug Ott at Andvari Assoc. back in October (“The Power of Culture,” Oct. 14), and that’s a really interesting interview for folks who don’t know him… and Greenhaven Road’s Scott Miller is also a fan and PAR shareholder, noting this in his October letter:
“At the end of September, PAR issued equity and sold more than $120M of shares. Given that the company was sitting on $38M in cash, it seemed like an odd decision to some, and PAR’s share price declined by more than 15% over two days. I believe that the issuance of shares precedes a large acquisition, and I am very excited to see how Savneet puts the capital to work. PAR is on a multi-year journey. Not too long ago, it was an undercapitalized business with a very attractive software asset buried inside and the wrong management team to nurture it. A lot of foundational work has been put in place to fix the balance sheet, fix the technology, and fix the team. There is a long runway with a lot of opportunity here and an excellent jockey.”
“The temptation is always there to take profits on companies that have surged since you bought them, and my only antidote for that is to take a step back, try to re-analyze them afresh, and see if the reasons I bought shares are still valid. Selling something that has gotten popular is tempting, but it’s counterintuitive — you bought it because of the big potential, and because you thought there was more growth potential than they were being given credit for by other investors… don’t sell it just when that potential is starting to be recognized by more people. Yes, mind the risk… maybe hedge a little, maybe sell 10% to make yourself feel better (that’s how much of my stake now has a trailing stop order attached, as noted above [ed. update: that order ended up being filled to sell 10% in the $60s]), but good companies with really compelling prospects and management teams who are worthy of some trust and excitement are rare — don’t throw them out if you don’t have to.”
And just a few days ago I posted another quick note for the Irregulars about PAR, so here’s that if you’d like my latest thinking:
“PAR Technology (PAR) had a strong week, largely driven, it seems, by the fairly high-profile announcement that they’ve signed up CKE Restaurants as a customer for their Brink POS software (which is a cloud SaaS offering for running POS terminals and some restaurant back-office functions). We don’t really know exactly what the financial impact will be (CKE owns Carl’s Jr. and Hardees and those brands have a total of almost 4,000 outlets, but the announcement said they would use Brink for their corporate-owned stores and “select franchisee restaurants”), but winning business from a large franchise operation that was already a hardware and services customer of PAR’s is a good reminder that selling software subscriptions to these big chains that use PAR hardware is a key part of the growth potential (Hardees already had PAR hardware for their POS terminals in about 75% of its locations).
“PAR has some relationship with at least 100,000 restaurant locations, primarily hardware sales (they sell both POS terminals and drive-through headsets/communication systems), but before this CKE announcement they had only about 10-11,000 Brink POS customers — so the rosy headline is that this gives them 30-40% growth in that cloud business, but that’s probably jumping the gun a little since we don’t know exactly how many locations CKE will push to Brink.
“Brink is certainly where the growth is, though, and where the margin expansion should come from in future years. This comes on the heels of their last announced customer acquisition, Brink won the Boston Market business in December (that was a huge and hot chain 20 years ago and is trying to make itself more relevant again, but is also still a meaningful business right now, with 350 locations), and as they try to continue to build on their relationships with Brink customers with new value-add services, most notably including the PAR Pay merchant banking/payment processing service they have talked about for a while, but only formally launched back in October.
“I’ll be very curious to see how PAR talks about the potential growth in their cloud offerings (Brink and Restaurant Magic) in 2021, particularly with the ongoing pandemic upheaval for the restaurant industry, but it will probably be a while — they did present at the Needham Growth conference this week (I haven’t seen any news out of that, so they probably didn’t say anything new), but their next quarterly report won’t be until March.”
So… not a brand new idea, but still, I’d say, a great company. Really curious to see what they say at their next update about their sales backlog, the uptake of that new payments offering, and their expectations for 2021. And, of course, perhaps Scott Miller is right and PAR will make a meaningful acquisition in the near future that could change the story, or they’ll offload their smallish (and unrelated) government technology contracting business at some point, we’ll see.
As long as Cloud SaaS stocks remain popular, there might be folks chasing the valuation — the stock on the surface looks relatively cheap compared to many “hot” names, at 6X sales, but if you want to be more conservative we should note, for perspective, that less than a quarter of that $208 million in sales for the past four quarters was “subscription” revenue — most of it was from hardware sales, primarily the POS terminals but also the newly acquired drive-through headsets business (and the government sales). The transition to more recurring SaaS revenue will continue to take some time, and though PAR remains a smallish company (market cap around $1.6 billion), investors have certainly now started to notice the potential.
And how about the other two stocks hinted at? Here are the clues about the second:
“Opportunity 2: The Market is Completely Clueless
“The second SaaS opportunity Bryan is sharing today is a very tiny company… with a market cap under $310 million.
“And like the stock I just told you about… you won’t find it on any list of SaaS businesses.
“That’s because this company’s first official SaaS product just began beta testing in fall 2020.”
So… what does the company do? More hints:
“All I can tell you is this company has created what we believe will be the final word in cybersecurity tech. There is literally no business who doesn’t need this product – and perhaps even more importantly, there is no business that can’t afford it.
“Over 20 years of analyzing cybercrime, this company has amassed what industry experts are calling the most valuable database in existence.
“The company reports that this database has more than two trillion rows of data…
“And within just the past few months, they’ve turned that data into an offensive weapon against the worst cyber criminals…”
And apparently they’ve got the data to block malicious actors as an add-on service, compatible with other security services:
“Per Bryan’s call with the CEO, none of the big-name cybersecurity companies have anything close to this amount of data.
“He says that while big names like Cisco Systems (CSCO) or Palo Alto Networks (PANW) can block anywhere from 200,000 to 800,000 known cyber threats, this company’s product can block 2.7 billion – right off the bat.”
So that tells us this is a repeat of the stock they started pitching back in September, which I concluded was Intrusion (INTZ)… and it has had a nice run since then, it was in the low teens as they were anticipating an uplisting to the Nasdaq and starting their pilot launch of their Intrusion SHIELD offering, and the stock has more recently gotten to about $24. The market cap is now up to about $425 million, which is close to 50X trailing revenues, so much of your assessment should be based on whether or not you think they can transition to this SaaS product and get lots of customers signed up over the next year — the transition from selling boxes and selling software to selling subscriptions is murder on the revenue line while that transition happens, so it doesn’t always look pretty, but if it works and those recurring revenues start to flow in, then investors will usually pretty begin to look to that future steadiness and value the future revenues more highly.
You can see Intrusion’s latest investor presentation here, and their announcement that the beta testing was successful and that “most companies participating in the beta program are migrating to the production phase of Shield” seemed to be the primary catalyst for driving the shares up last week (from ~$17 to ~$24), so you can see what kinds of abrupt moves are likely with these tiny companies. It’s an interesting idea with some clear potential, as it was back in September — I still a