Running PLAN through the Antifragile Framework

Greetings Fools,

Using my Anti-fragile framework, I wanted to show how Anaplan (PLAN) stacks up.

Barbell Strategy

Mission Statement
“to make all planning for all people a reality”
This is what’s on the company’s IR page.

In past filings, it is stated as: “To connect people, plans, and data to accelerate business value.”
I hate jargon like “accelerate business value”. Just keep it simple, say “to make better decisions”

Simple: I’m taking a little off for that jargon
Optionable: Yes, as you’ll see below
Inspirational: Yes, but only without the jargon

+1.75 points

Moat
Network effects: First, there are within-company network effects. Anaplan goes after big companies (Global 2000). It’s tools help people make better decisions in a wide variety of departments (sales, finance, HR, marketing…you get the idea). Usually, one will kick the tires, and then (if it’s successful, as it usually is) it will expand out to more departments.

But there’s a secondary network effect as well. The company’s proprietary Hyperblock technology leans heavily on AI, ML, and predictive analytics. More data = better tools. So every new customer adds – tangentially – more value for existing customers.
+2.0 points

Switching-Costs: It’s hard to know if the switching costs are really that high, or if the company is just the best performer out there. It’s duking it out against IBM and Oracle and winning (according to Gartner). Ironically for this measurement, it’d be better if it was obvious customers were staying on despite inferior performance. That sounds Machiavellian – because it is.

But in the end, this is about me and you getting to make better decisions – not so Machiavellian. In the end, I’ll give it some points thanks to the 123% dollar-based net retention.
+1.25 points

Optionality
When Michael Gould created the Hyperblock technology to power Anaplan in an English shed, he really only thought the tool would be helpful in finance departments. The fact that everyone from normal operations to supply chain can benefit is evidence of optionality. That said, since this discovery, it seems hard to see where further optionality may come from.

+1.75 points

Skin in the game

Role of founder: It’s very odd. Gould was the CTO at Anaplan until (according to his LinkedIn bio) he left the company in August 2018. Just one month before he was giving interviews about the future of Anaplan, and I could barely find anything about his departure. I normally don’t take points off if the founder isn’t involved, but these circumstances are very odd. I’ve never seen a founder leave with absolutely no explanation.
-0.5 point

Insider Holdings Insiders combined own 37% of shares outstanding. This is almost entirely due to the early VC investors who sit on the company’s board.
+1 points

Glassdoor: The company earns 3.7 stars (out of 5.0) on Glassdoor.com. CEO Frank Calderoni has an 88% approval rating. That said, I perused the Glassdoor ratings and noticed some very troubling patterns. Positive reviews were left almost all on the same days, and the company stopped responding to reviews altogether following the IPO. Negative reviews were rampant and varied, signifying that they weren’t forced on employees.

Even the negative reviews glowed about the product and Calderoni, but that means the cultural issues might be deeply embedded, giving me pause.
-1 points

Financial Fortitude

Financial statements
Cash: $311 million
Debt: $0
Free Cash Flow: ($43 million)

Right now, it makes sense to go after market share and use capex to fuel that growth. That said, it obviously puts the company in a fragile position should there be a major market downturn.

-0.25 points

Concentration Risk
The company doesn’t have any customers that account for more than 10% of revenue. It has over 324 with annual recurring revenue over $250,000. So it’s definitely varied. I’m a little wary of the fact that it only goes after the execs of Global 2000 companies. While this obviously makes the sales budget more efficient (there are 2,000 execs to target), it also means that any defection from one in this tight global community could lead to others.

That said, I’m not going to take points off for it now, just note it.
-0.0 points

Total Score: 6 points

I’ve run companies through this framework for well over a year, but I do it anew every time (I find that doing so…while laborious…forces me to be more aware of the current situation). As such, I don’t have a huge database to draw from. This lands PLAN near the middle of the list.

This is somewhat surprising, given the torrid growth (subscription revenue iup 57% per year since 2016) and obvious sticky-ness (dollar-based net retention at 123% and holding steady). Those are things I like in a company. At the same time, the departure of Gould, the very shady reviews on Glassdoor, and the lack of positive cash flows are a concern. In the end, those cultural concerns might be nothing. But when you have a huge universe of stocks (and the real-world cultures behind them) to choose from, you can be picky.

I’m watching for now, but not buying.

Brian
See all my holdings here: http://my.fool.com/profile/TMFCheesehead/info.aspx


What is Antifragile framework and how has it performed?

Fool One access: http://discussion.fool.com/1255/a-primer-on-the-antifragile-fram…
Rule Breakers: http://discussion.fool.com/1069/a-primer-on-the-antifragile-fram…
Stock Advisor: http://discussion.fool.com/1081/a-primer-on-the-antifragile-fram…

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