Anaplan, Part II

I have shaved 40 shares of LMND this week at around $177 per share. First, I am still long and still have a position. Price + valuation has run up in a short-squeeze manner, satisfied with being up 200%, ripping the shorts apart. 2) I am running into the issue of no more cash being deposited into my Fiducia Fund since I am now self-employed, so I will have to shave and be more strategic around my core holdings, this brings me to point 3. 3) I want to build Anaplan as I believe they will be a low-key winner in 2021+ as businesses want to become more connected. As I am writing this post, it seems to be Lemonade just did a secondary offering of common stock. Below is proof of my transaction on LMND.

 

Boring stocks can be fun stocks, from my experience, the boring stocks tend to chug along nicely as they are ignored by the masses because they are not moving up 5% a day. Anaplan is a boring stock, lets be honest.

I went over the business in part 1 linked here: https://www.fiduciainvesting.com/post/anaplan-plan

I truly do believe Anaplan could be an out-performer this year of the broader indexes.


First, an acceleration in revenue Growth as many larger research firms have stated the past 2 weeks (we said it first, toot toot). Depicted in the chart below, you can tell where COVID-19 hurt, this is quarterly YoY. Management has noted this:

I believe we start to see growth accelerated first 6 months of 2021 as deals that were "put off" in 2020 due to the virus, start to show in their reports. You might think, well this is probably priced into the current share price! I wouldn't be too sure, given their valuation, what they are growing at, and the potential to be acquired. I think people are ignoring Anaplan because it is boring, hell, I was having a hard time reading about it but the deeper I dig, the more I like the story and what they are trying to do. Definitely feels like a target for an acquisition (same with my lovely BlackLine). If either of these companies get acquired in 2021, we are going to have some work to do to find new names! My sentiment check shows me that no one even knows what Anaplan is, people are too busy "chasing" stocks right now in my opinion.


In the frothy valuation market among SaaS peers, I think Anaplan is set up to expand more in 2021 providing we see growth acceleration.

Obviously estimates are thinking the same thing, but my estimates are more in the 30-32% range for acceleration in revenue.


As of last quarter, Anaplan had $0 in long-term debt. Cash and Cash equivalents of $296.801m, impressive to say the least even with rates so low taking on some debt to fund new investments may not be a bad choice. With companies like Anaplan, BlackLine, and Cloudflare, I am really focusing on operating margin improvement this year. Operating margin can be solved by (Operating Income / Revenue). I like utilizing this profitability ratio for these higher growing names, and forecasting out how long I personally think it will take for them to be profitable, or prove to me they are on the right track. For blog posts, I do not want to focus too much on THAT part, but focus on more why I own it and think it can get there. Below is a graph from FinBox on the trend of quarterly Operating Income Margin for Anaplan:

We can see since September 2018, Anaplan has been improving their Operating Margin over the last 2 years. I like to see this. below, we can see the improvements in EBITDA Margin, coupling that with Levered FCF Margin:


There is a lot to like about this company thus far.

Above we have the latest 10-Q and we can see the breakdown of where the revenue comes from. This is important when studying a company, because we want to know where the exposure is whether we see trade related news, or macro news that could hurt the stock, or the loss of a larger customer. A hypothetical example we can come up with is, let us say US Administration says "no more software companies can do business overseas!".. well.. we know right off the bat that EMEA accounted for 33% of last Q revenue and APAC accounted for 11%. We now know right off the top of our head that Anaplan could lose roughly 44% of their revenue, so we will see that reflected in the stock price. I like to know this information, because we can also analyze future opportunities that Anaplan may have in those Geographic segments. This helped during the trade war, and heavily trading around Lam Research made a lot of money.


What I also like about Anaplan, is their initial subscription term is typically two to three years. Some customers have shorter periods. Customers are billed annually in advanced. The best part is the company has professional services that include: implementation, consulting, and training. The company is leveraging partners they have to provide these various services. Subscription revenue as a percentage of total revenue was 91% and 89% in the three months ended Oct 31, 2020 and 2019 respectively. The number of customers with greater than $250k of annual recurring revenue was 417 as of October 2020, this is up from the 353 as of January 31, 2020.


Acquisitions:


The latest acquisition Anaplan had was a company called Mintigo limited, this is an Israeli-based AI/ML company, Anaplan sees this as a value-add to their predictive capabilities to their solutions. They also plan to reinvest a significant portion of incremental revenue in the future to grow the business, and build their leadership in the Connected Planning category of SaaS.


Other News:


  1. Anaplan Names new Chief Revenue Officer, Bill Schuh

  2. Evercore names Anaplan a favorite stock into 2021

  3. Needham names Anaplan "Best Idea" for 2021, on the Conviction List

  4. Piper turns bullish on Anaplan, demand improvement, as businesses shift to connected real-time planning

  5. Jefferies, software will continue to outperform in 2021, PLAN raised from hold to buy, $85 PT from $70. (more!!!)


Enjoy,

Fiducia B






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