Avalara

Investment Analysis Clubs Saul’s Investing Discussions
1

Avalara is a software company that looks interesting. I started a tiny position today. M

Avalara provides a cloud-based software platform to deliver tax compliance solutions related to sales tax and other transaction taxes, such as value-added tax. Avalara streamlines all of users’ tax compliance documentation into a central repository for access and accountability. It works within a customer’s own financial, billing, e-commerce or point of sale system to deliver tax calculations in real time via an Internet connection. Its products include Avalara AvaTax, which offers users an automated end-to-end tax compliance solution; Avalara CertCapture, which allows users to track, manage and justify non-taxable transactions, and Avalara Returns, which helps ensure end-to-end automation of users’ sales tax compliance process. Avalara Returns manages sales tax notices and responds with the requested information. Avalara Returns automatically provides e-file, hard-copy, Streamlined Sales Tax and excise tax returns for businesses of all sizes.

IPO was June 2018. They have no debt and are up 122.6% YTD. Market Cap is 6.5B and P/S is 16. Revenues growth is steady but, not spectacular. Their Q2 Earnings Report (August 7,2019) showed a 44% change from the year ago quarter. Their net retention rate up from 107 to 111 and their adjusted gross margins are about 71%. They estimate their TAM at $8B.

Q1 Q2 Q3 Q4
Revenues
2018 64 69 77
2019 85 91

% Revenue Increase
2018 25 26% 33
2019 38 44

Net Retention Rate
2018 107 107 107
2019 107 111

Adj Gross Margins %
2018 71 73% 73
2019 71 71%

30 Likes
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Net Retention Rate
2018 107 107 107
2019 107 111

Without looking further, this is a big red flag. Rates below 120% often signify long sales cycles.

Bear

11 Likes
3

Without looking further, this is a big red flag. Rates below 120% often signify long sales cycles.

Not necessarily long sales cycles, it could be the lack of premium add-on products.

The Economics Of The Upsell

Acquiring new customers is expensive. But do you know just how much of a difference new customer acquisition versus existing customer upsells and renewals can make to your bottom line and your growth?

https://www.insightsquared.com/2016/05/the-economics-of-the-…

Denny Schlesinger

7 Likes
4

The red flag for me is TAM at $8B while the market cap is $6.5B. That would terrify me.

My assumption would be that this company is riding a wave of SaaS bullish optimism. And there are perhaps many people who are holding this stock who have no idea how low the TAM is. Not sure what the hell the market is excited about.

Shopify and Square have huge TAM opportunities. I’m not familiar with this company, but “tax compliance solutions” screams niche to me.

They have no debt and are up 122.6% YTD.

I would take the win and sell. Maybe use their solution to help figure out your capital gains. Congrats on the profit.