SharpSpring Q4+

Updated: Mar 19, 2021

SharpSpring, a micro cap name I am personally invested in just had their Q4 report for 2020, and I will go over what I think and where the business could possibly be headed. This write up is for paid members only.


Quarterly Results:

The business provided solid revenue growth rising 25% year-over-year to a record $7.7m in their fourth quarter results. Their Gross profit increased 42% to $5.7m which represents a solid 75% of total revenue, which is up from $4m last year representing 65% of total revenue. Their core net loss (non-GAAP) totaled $1.1m, or $.09 per share, but compared to a year ago with a net loss of $2.1m and $.19 per share loss this is a major improvement. To end the year, the business has $28.5m in cash vs $11.9m ending December 31, 2019.

FY20 Financial Results:

Total revenue growth on a year-over-year basis just grew 29%, that is just as much as Anaplan yet SharpSpring is trading at a fraction of the price-to-sales. Revenue was $29.3m vs $22.7m a year ago. Total Gross Profit increased 36% to $21.2m (a record) which was 72% of total revenue. Net losses have drastically improved year-over-year coming in at $5.8m or $.50 vs the loss of $12.4m or $1.20 per shares last year. Visual below on the bottom line, we can see it is steadily increasing YoY even with the newly issued shares.

2021 Guidance:

The business is guiding for revenue to be between $34m and $36m for FY21, one can assume growth at the midpoint so they guided for 20% YoY growth. I find this to be "so and so" and will be monitoring, I continue to like the story. Below you can see the current trend of revenue growth, despite being a guide of 20%. We have seen growth "slow" and re accelerate multiple years per the yellow line over the years. Will personally be looking for 25-28% growth this year in the top line.

Fiducia Thoughts:

I thought it was a decent quarter and the stock is certainly down because of the guidance and uptick in spending. While I agree with the uptick in spending, I do not agree with 20% revenue growth guide. That feels rather weak and a large drop off since we just had 29% growth YoY even with COVID, but maybe that is how investors felt from 2016 to 2017. Carlson notes that they already started the spend in Q1 to ramp revenue for future growth, we will see if it pays off. Increased spending (at 50% of revenue) to only grow 20% does not make too much sense to me.

Rick noted on the call that they are slowly returning to a normalized basis, pre-COVID levels. To me, it sounds like this year could potentially be a huge tailwind for them if they increase spending at roughly 2019 levels (noted on the call), which will be around 50% of revenue. Coming out of the economic crunch we had, new business, new agencies, SharpSpring could be a real winner and we will monitor closely. This is all depending on management execution at this point.

Management also noted the drop in MRR, Monthly Recurring Revenue, and said quite frankly it was difficult to get additional MRR and tough to get the attention of sales in Q4. It was not where they wanted to get in terms of MRR, so with management being straightforward on that I will monitor that more closely, but all other KPI's seemed fine (Key Performance Indicators).

Most of the cash that has been raised through Cash from Financing. Basically, the company is raising cash through debt, equity, and dividends but in this specific case it shares. The company issues 1m shares, or roughly raising $13.9m in cash. "Net proceeds to be used for funding all or a portion of the cost of acquisitions."


I do not find the current valuation to really be that bad honestly, with an expectation in revenue growth we are trading at EV/Sales of 6.5x FY21 and 5.75x FY22. I will not go any further out than that. If the business can consistently post 20%+ growth I think they can sustain a fair multiple expansion. Rick is still focused on profitability, so that is another positive tailwind for valuation.

Focused on strong pipeline in 2021 so far, so we have to see how that shows up in the next few quarters. We are going to need patience with this business as they are considered micro cap and highly volatile on day to day moves. Technicals are not looking too great on the stock right here, we could see some lower prices and the 200dma. I added here because I do not know if it will go lower, sideways, or higher in the short-term.

We can't forget that the initial jump on SHSP from $20 to $25 was because of HUBS report, so the fade makes sense to me. This pullback is healthy, and given the broader market action makes sense. I will continue to nibble on shares over time.

Stay focused everyone. These are the REAL markets, 2020 was an anomaly.


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