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
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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 am far from being an expert on whether their technology has an edge over other appliances or services in blocking malicious traffic, but it is at least a little reassuring that the beta test reportedly went well and led to customer signups. And they actually have one analyst covering the stock now, B. Riley’s analyst anticipates that revenue will triple in 2021 and triple again in 2022 — I don’t know if he’s right or not, or if he’s fluffing up the company because that firm was the manager of their latest share offering, but if that forecast holds any water INTZ should do very well.
So what to do? Well, I wasn’t ready to nibble on this one back in September… but given the continuing strong trend of increasing cybersecurity needs, the Nasdaq listing, and the commercial launch of the new product, I did decide to take a small nibble today. I don’t want to go in big on richly-valued stocks that have tripled over the past few year, I think INTZ is far riskier than PAR and there are certainly no guarantees that this legacy provider will succeed in their SaaS transition, and certainly I have no idea what will happen to the share price in the next few months… but a little bite seems worthwhile, as I monitor INTZ to see how sales of their SHIELD product proceed this year.
And one more… whatever else are they pitching?
“Opportunity #3: Extraordinary Gains in America’s New Favorite Industry…
“… there’s one more SaaS opportunity Bryan and Mike have detailed in this report, which I haven’t mentioned yet.
“And it could be the biggest SaaS story of all.
“All I can tell you is this company makes ‘back office’ software for an industry that’s spreading across America, state by state, because of big regulatory changes.”
Hmmmm… sounds kinda familiar… more?
“A brand-new industry that’s growing at a blistering pace. In fact, revenues shot up over 90% last year alone.
“And to harness all this growth, you don’t need to pick one state or one business that’s going to dominate the industry.
“Because almost all of the biggest players use this one, tiny company’s software.”
That’s all we get by way of clues this time… but my best guess is that this is a repeat of the second stock they teased back in February of 2020, GAN Ltd. (GAN) — at the time, GAN was a really interesting little London-based (and listed) company that had built back-office software for casinos and was almost out of business in 2016 and 2017… but then rode the rise of sports gambling in the US, particularly in New Jersey, to quickly partner up with FanDuel and some other providers to offer account management software for this highly-regulated industry, and that rescued the company.
Back in February, they were just beginning to plan a US listing and a move of their headquarters, and I decided that was appealing and bought shares of that one at the time, too (I guess this Stansberry Venture strategy appeals to me, if these answers are correct that means I now own all three of their current “hidden SaaS stocks”). They did indeed make it to the Nasdaq and shift to become a US company, and for a little while last summer they were also a market darling thanks to the excitement over DraftKings, Penn National and the endorsement of new day trading enthusiast Dave Portnoy over at Barstool Sports (who moved from sports gambling to stock trading when sports shut down).
That has settled down a bit, they’ve now lost some of the FanDuel business but gained others (including Wynn in Michigan, and Churchill Downs’ BetAmerica business in many states), and they bought a sports book provider so they can offer up a fuller suite of services for US casinos who want to quickly take advantage of the rapid pace of gambling legalization.
GAN is not the only provider of back-office services, player account management, online casino games, or sports book services, and they won’t likely appeal to the biggest casino groups who want to build and control their own software, but they do offer services that seem quite appealing to smaller or regional casinos who want a quick and seamless launch of online gambling when states push forward with legalization — as many states are doing, in recognition of the incredible budget hole that most cities and states are in right now thanks to the pandemic… and indeed, they also get a boost from the pandemic because casinos are ever more focused on offering online gambling, where that’s legal, given that physical casinos are facing many of the same pandemic challenges as movie theaters and restaurants right now.
They make most of their money from the revenue share they get for operating online casino games, so the biggest part of their revenue is not driven directly by sports gambling (which is not generally as profitable as casino gambling for most traditional casino operators, anyway)… but they do nicely in states where online casino games are also approved, and where sports gambling brings in a lot of new customers who they can also cross-sell into online slot machines or blackjack or whatever else.
And since yes, I own a fair chunk of GAN shares, I also follow the news pretty closely — here’s part of what I wrote about GAN in last week’s Friday File, in case you’re curious:
“GAN Ltd. (GAN) made its first tentative deal to provide its newly-acquired Coolbet sportsbook technology and service to an unnamed but existing client in Virginia, which was one of the states to approve online sports betting this year (I hadn’t noticed, frankly) — there’s a lot of wiggle room, that client apparently does not even have a license to operate in the state yet, but it’s nice to see deals to put their newly acquired sportsbook business to work, and that at least one customer is interested. There are no rules about having a physical casino partner, and there aren’t really any casinos in Virginia, so it seems likely that Virginia will be a lot like Tennessee for a while — online only, sports only (no casino games). That makes it likely that Virginia will not be a big revenue market for GAN, but it could still be meaningful… and it’s a good test case for getting Coolbet launched as a B2B service (before they were acquired by GAN, Coolbet was really strictly a B2C service, offering up a sportsbook for individuals in several countries, but GAN intends to offer it up as essentially a white label technology/sportsbook offering, SaaS that can be branded and operated by partners….
“There are probably fewer than a dozen states that are really in the “never ever will have sports betting” camp, including some conservative holdouts like Alabama and Utah who are among the few states to still not even have a lottery (even longtime holdout Alaska considered lottery legislation this year, the only other states without one remain Mississippi and Nevada, partly because of competition with their casino industries, and Hawaii).
“So yes, sports betting legalization continues to sweep across the country — but no, Virginia and Tennessee are not likely to be major drivers for GAN revenue. The prize to keep an eye on is still how Michigan’s rollout goes and what the revenue from GAN’s three operators in Michigan looks like later this year, and how Churchill Downs’ BetAmerica begins generating revenue across their multiple locations from the deal they made with GAN last year. Those will be gradual builders, probably, we’re not likely to again see a zero-to-60 launch like New Jersey in 2018 and 2019 (which GAN really rode the wake of, thanks mostly to its FanDuel partnership), all the casino operators are paying more attention and are more prepared now to compete, but we are heading into what are typically the biggest two months on the sports gambling calendar (the Super Bowl and March Madness, assuming that college basketball tournament is able to go forward), so Michigan and Virginia might be launching just in time to get a nice launch boost from those events.”
And here’s what I wrote about the stock back in December, when they had a dip on the Coolbet acquisition news and notice that they would be raising capital at $15.50 a share to help pay for that — this still sums up my opinion pretty well, we now have confirmation that Michigan’s online gambling market will open for business on Friday with the first bets, just in time for the NFL conference championships, and that remains the biggest potential near-term catalyst for GAN revenues so I wouldn’t be surprised if that generates more news, but I’ve bought shares at prices ranging from $6 to $22 over the past year… and at this point I’m happy to hold and see how the business develops for a while:
“The major risk remains the loss of major clients, and the gradual loss of FanDuel’s business over the next few years is going to put a damper on growth potential… but at the same time, they should be able to replace that and more with their newer partnerships with Churchill Downs and Wynn, along with whatever other new business they can book. So I’m not looking for explosive growth, but I am looking for long-term growth as they capitalize on the growth in sports gambling and cross-sell those sports gamblers a casino iGaming experience that, for GAN, is the most lucrative part of their casino deals. Sports gambling brings in the users, and the spending by big brands to acquire more sports gamblers is likely to be intense over the next few years… but online slot machines and blackjack and whatever else bring the real profits for GAN.
“I don’t know whether the stock will hit $10 or $30 next, and we could easily see both those prices in the next year, but with a growing national surge in legal gambling I think it’s probably a mistake to be too skeptical when we have a reasonably valued growth stock that’s quietly growing as part of that national surge. There are effectively four or five states with meaningful online legal gambling markets that include online iGaming… what happens if that’s 20 states in three or four years, as is very possible? That’s a lot of smaller and regional casinos who will need a fast-moving technology provider who has the experience and the regulatory approvals to launch a service quickly and safely, and integrate those online customer accounts for their existing in-person gaming customers and loyalty programs. GAN slots in nicely there — they’re not the only player in this market, and they’re not likely to be the sexiest gambling stock given the lack of a consumer brand, but I don’t see any big reasons to doubt their potential right now. There may be a press release here and there as Michigan launches, but we probably won’t really know much more until they report their fourth quarter in mid-February.”
And that’s all I’ve got for you, dear friends — the latest “Hidden SaaS stocks” from Stansberry are not new, but this is a bit of a melding of the stocks they pitched last February and the ones they pitched in September, and they’re all still interesting and worthy smallish companies. They’re not objectively cheap, they’re not entirely unknown, but they’re certainly not headline names, either.
So I’ll turn it back over to you — like any of these SaaS names? Have a favorite that didn’t make this list? Let us know with a comment below… and as always, thanks for reading.
P.S. Gumshoe readers always want to know what you think of the newsletters you’ve subscribed to, not just their overheated ads — so if you’ve ever tried a subscription to Stansberry Venture Value, please click here to share your experience with your fellow investors. Thanks!
Disclosure: Of the stocks mentioned above I own shares of PAR Technology, Gan Ltd. and Intrusion. I will not trade in any covered stocks for three days after publication, per Stock Gumshoe’s trading rules.