With projected calendar 2015 sales of $410 million and a market cap of roughly $3.3 billion, Veeva Systems is a leading provider of cloud software for salesforce automation, content management, and sales contact data to the global life sciences industry. Based on an exclusive software license from salesforce.com (NYSE: CRM), Veeva’s CRM software is now utilized by 17 of the top 20 largest pharmaceutical and biotech companies, including eight of the top 10. Within the top 20, only three have thus far not made the switch to Veeva: Switzerland-based Roche Holding, France-based Sanofi, and France-based Novo Nordisk, which ranks in the top 15.
Veeva has identified an annual market spend of over $5 billion in software for CRM, content management, and sales data, and so it has much running room ahead. Veeva has already captured an estimated 50 percent of the CRM market for pharma and biotech, and could very well capture as much as 60 percent of the market over the next several years, as the company continues to roll out new seats to existing customers, and sell additional CRM add-on modules.
Since Veeva is cloud-based, and features a multi-tenant architecture, the company can update the software of its entire customer base at the same time, reducing the time, aggravation, and cost associated with maintaining and updating several versions of the same software program. Veeva’s cloud-based product set stands in contrast to two of its largest competitors, Oracle (NASDAQ: ORCL), and IMS Health Holdings (NYSE: IMS), which support and maintain several software packages simultaneously, many of which have been developed for older client server computer systems, and are not hosted in the cloud. Support for these older software products detracts from keeping their cloud products up to date, which will likely lead to further market share erosion.
Veeva’s newer products for content management and sales data, respectively, accounted for less than 10 percent of sales a year ago, but now account for about 20 percent of product sales. These products carry slightly higher gross margins than the company’s CRM products, and more than double its addressable market. Veeva has additional room to sell Veeva CRM, Veeva Vault, and Veeva Network to existing and new customers, as well as to sell the new products to other segments in the life sciences market, such as medical devices, laboratory instruments, and CROs—segments with which the company conducts limited business currently.
Veeva benefits from an experienced management team, led by Peter Gassner, a former SVP of Technology at saleforce.com, and at Peoplesoft (later acquired by Oracle), where he was Chief Architect and General Manager for PeopleTools, and at IBM Silicon Valley Lab, where he participated in database research and development. Matt Wallach, co-founder and President, was formally GM of the Pharmaceuticals and Biotechnology division of Siebel Systems (later acquired by Oracle). CFO Tim Cabral has held financial management positions at Peoplesoft and other technology companies. Detailed knowledge of the specific needs of the pharma and biotech segments, gives Veeva a leg up over its competitors, many of whom have only general knowledge of the life sciences sector.
Veeva has a strong balance sheet, which features $438 million in cash and no debt, and continues to generate very solid cash flow, all the while growing the business, while running at a 30 percent operating margin in the most recent quarter.
With annual sales of $233 million and over 2.6 million active customers, Pompano Beach-based PetMed Express (NASDAQ: PETS) is the largest pet pharmacy in America, and a leading online provider of medication, nutrients, and health-related supplies to pet owners and their dogs and cats. Leveraging the trends toward online commerce, an aging pet population, and the impending shift from topical medication to prescription pills, PetMed focuses on the health management needs of its customers’ pets. About 45 percent of sales comes from prescription medication, 45 percent from health-related products, and 10 percent from pet lifestyle products.
Health-related trends in the pet population mirror trends affecting their owners. These include rising levels of life expectancy, yet greater presence of disease and chronic conditions such as obesity, thyroid, and arthritis. Like their human companions, pets are benefiting from greater awareness of the impact of a nutritional diet.
A key factor impeding PetMed Express’ sales growth over the last couple of years has been the emergence of numerous brick and mortar and online retailers that have expanded their efforts in the pet health category, seizing upon an obvious area of consumer interest. PetMeds’ strengths include the ability to fulfill 80 percent of prescription orders through an online customer care group, at prices that range from 10 to 50 percent below veterinarians’ prescription medication prices. PetMeds boasts an 80 percent one-day turnaround time on orders, and an 80 percent reorder rate among customers. PetMeds’ highly efficient operations yield over $1 million in revenue per employee, which enables it to achieve a 12 percent operating margin, 20 percent higher than PetSmart, its closest publicly-traded peer, despite a dramatically lower sales volume. That said, competition ranks as the number one impediment to PetMeds’ near-term growth.
An experienced management team has been focused on identifying areas of profitable growth for the company, including a greater emphasis on higher margin prescription drugs. Newly introduced creative advertising may help to generate sales to new customers, an area which has been growing at a slower rate in the last year. While the company develops a profitable growth strategy, investors can draw upon a dividend, which has increased steadily over the last several years. Its current yield is 4.4 percent.
PetMeds’ core competencies in online distribution, customer service, efficient inventory management, and advertising, combined with a 2.6 million pet owner active customer base, and solid balance sheet make it an under-valued asset, one which we believe will grow in value over time.
As BlackBerry (NASDAQ: BBRY) refines its mission of “pushing the boundaries of mobile experiences,” all eyes will be upon 58 year-old John Chen, who has been named interim CEO.
Mr. Chen, who hails from a modest upbringing in Hong Kong, and lived in New England for several years, where he attended the Northfield Mount Herman school on the banks of the Connecticut River, and graduated with a EE from Brown University in 1978. He then headed West to receive his masters in electrical engineering from the California Institute of Technology the following year.
John Chen began his career at Unisys, (the merger of mainframe computer companies Burroughs and Sperry) as a hardware engineer, and later became president and COO at age 38 of Pyramid Technology Corporation, a fast-growing computer company, based in San Jose, California, started by former HP engineers, and a pioneer in Reduced Instruction Set Computing. After Siemens acquired Pyramid and merged it into Siemens Nixdorf, Chen became president and CEO of Siemens Nixdorf’s Open Enterprise Computing Division in 1996.
A year later he joined Sybase, as president and CEO. Sybase, at one time, was the youngest and fastest growing database software company in the world, and a perceived challenger to Oracle for technology leadership. A series of management missteps pertaining to its products and technology, misleading financial statements, and ultimately lost investor credibility, led to a multi-year phase of purgatory—not unlike that experienced by BlackBerry.
This set the stage for a turnaround, which was led by John Chen, after he assumed leadership of the company in 1997. Under his leadership Sybase reemerged as a provider of data warehouse and other analytics software, mobile data management, messaging and virtualization technology. And the company recorded 55 consecutive quarters of profitability. In May of 2010 SAP AG the German enterprise applications software giant acquired Sybase for $5.8 billion, thus filling a gaping hole in its own product line, and better positioning itself as an Oracle competitor.
Among the myriad challenges facing John Chen and the management of Blackberry is what to do with the company’s smart phone and tablet business, which has steadily lost market share to long-standing competitors and up-starts. The company’s software challenges are no less daunting, although the company possesses solid mobile and security assets. Blackberry also benefits from several thousand patents relating to mobile devices, software, and security, and these are sure to be powerful assets in the future.
All in all, John Chen’s challenges exceed those that he faced upon joining Sybase some thirteen years ago. It will be interesting to see whether his interim position is followed by a more permanent one in which he can reestablish the leadership once held by the venerable Canadian company.
Personalized medicine is the massive market opportunity next generation sequencing (NGS) offers. The market was about $28 billion in 2011 and dominated by tissue tests to determine drug therapy decisions. The opportunity lies with the ability to generate targeted medicines based on virus/disease composition or individual human genomes. Unfortunately, cost and lack of analytical abilities have acted as impediments to the expansion of this technology into the clinical diagnostics, pharmaceutical and other applied markets, but progress is being made. From a cost perspective, NGS equipment designers have successfully reduced the cost of sequencing a complete human genome to sub-$5,000, from $1 million in 2007. The consensus is that once the price hits or goes below $1,000, the technology will be fiscally viable for more commercial and industrial applications.
One step in this direction has been the desktop analyzers offered most notably by Illunina (NASDAQ: ILMN) and Life Technologies (NASDAQ: LIFE). These instruments are about a sixth of the cost of the higher-end models and are of increasing interest to clinical customers. Both companies have plans to seek FDA approval, with Illumina expecting to submit its request with a specific assay method by the end of 2012. Consumables pull-through appears to be a healthy $55,000, although the sample size is small at this point.
In an effort to reduce the data-interpretation-headwind, Illumina has announced plans to launch five targeted content sets. These consumables were designed by experts to offer streamlined, targeted sequencing for specific genetic diseases or conditions. The targeted conditions include autism, cancer, cardiomyopathy, inherited disease and exome (genetic diseases). The products are only for laboratory use. Shipments begin in Q4 2012. These standardized sets should help advance the analytical abilities of researchers delving into each condition.
Illumina has also teamed up with Partners HealthCare to speed up clinical interpretation. Together they will offer medical geneticists and pathologists infrastructure and networking tools to support the analytics and reporting processes for genetic sequencing data. The companies are combining Illumina’s MiSeq analyzer with Partners’ GeneInsight suite of IT solutions for streamlining analyses and reporting of genetic test results. GeneInsight is FDA approved. The new tools will link to Illumina’s BaseSpace cloud-storage product enabling analysis of the stored data.
Another initiative Illumina has launched is its BaseSpace cloud-storage offering. The service will take genomics data and store it in a cloud-based system for easy sharing and analyzing. This bioinformatics product gives Illumina a key differentiator, as well as a new revenue stream and a way to help move past the data interpretation issue. Illumina will offer one terabyte free, then charge $250 a month for each additional terabyte, or $2,000 for the year. It also offers a 10 terabyte package that runs $1,500 a month, or $12,000 a year. The service will enable clinical customers and smaller research laboratories to avoid having to invest in their own expensive data warehouses. Illumina is also launching an app store for the BaseSpace that will enable researchers to develop analytical tools and sell them through the store, with Illumina taking a 30 percent cut.
Finally, Illumina has announced an addition to its whole genome sequencing service. The company will now offer a “RapidTrack” service that will expedite the sequencing of whole genomes that customers send to the company. Using the new HiSeq 2500, which is capable of sequencing a complete genome in one day, Illumina will now be able to return data sets to customers in less than two weeks. This high-end offering is much improved from main competitor, Complete Genomics, which can take three months or longer to return the completely sequenced genome. We believe this service offers another means to spur the adoption of sequencing techniques in new markets.
Two startups working to speed the process to achieve personalized medicine are DNAnexus and Bina Technologies. DNAnexus also offers a cloud-based service much like Illumina’s, positioning itself between researchers and the sequencing facilities. Bina Technologies is working on software to reduce the 300 gigabytes of information from each complete genome sequence, to a more manageable level. The company reduces the information into profiles, which are more easily uploaded to cloud-systems and are simple to share and manage.
While headwinds still remain, the push towards developing the ultimate market for NGS appears to be more at the forefront of sequence equipment manufacturers than ever before. We believe this bodes well for the long-term outlook for the industry.
October 13, 2014
Research on companies which have come public in the last several years is available mostly from the investment banks who were paid by the companies during the IPO process. This leads to a conflict of interest as the investment bank seeks to please the owners of the company, as well as provide an objective assessment of the company’s growth prospects to investors, the other group of clients whom the bank serves through its brokerage arm.
This conflict continues long after the IPO is complete, for once a company becomes public, investment bankers and analysts who played a role in the IPO may advise the company on future stock offerings, mergers and acquisitions, and customized plans for insiders to sell their stock.
As a research-only firm, Battle Road is focused on helping asset managers seek out stocks to buy and stocks to avoid, without the conflict presented by conducting business with the subject of its research. Since our founding in 2001, we have remained true to this principle.
The idea for the Battle Road IPO Review originated with one of our clients, a portfolio manager, who sought our help in seeking out solid companies with sustainable competitive advantages –and reasonable valuations—from among the many companies which have come public in recent years. Using quantitative and qualitative measures we developed a methodology for screening for new buy ideas.
The Battle Road IPO Review has become a monthly service that screens for new ideas from a uniquely designed universe of over 180 growth-oriented IPOs of the last seven years. The universe includes software, internet, computer hardware, cyber security, consumer, and business services companies. The median market cap. in the Battle Road IPO universe is $1.1 billion. The universe is rapidly growing with the addition of newly-minted IPOs on a regular basis.
We rank order the stocks by group each month and call out names for further exploration, based on our assessment of the company’s strengths and weaknesses, as well as other measures which include our interpretation of the company’s current valuation, balance sheet, quality of earnings, and other metrics. We draw upon these metrics, as well as qualitative factors to determine our monthly Exploration List, which is a sub-set of all stocks that we believe should out-perform the overall coverage universe. The Exploration List is therefore a screening tool for new ideas. We strive to develop a list that features both growth and value-oriented stocks. Our goal is for the median stock performance of the Exploration List to exceed the median stock performance of the coverage universe.
Our clients use the Battle Road IPO Review to:
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About Battle Road Research
Battle Road Research provides fund managers and analysts with an independent voice on technology and consumer stocks. Our research process combines rigorous financial analysis with insights gleaned from industry sources. We present our findings in straight-forward Buy, Hold, or Sell research reports. In addition, we publish The Battle Road IPO Review, a monthly screen for new ideas that examines the prospects of more than 180 growth-oriented IPOs of the last seven years. Since our founding in 2001 we have refrained from investment banking, company consulting, company-paid reports, and personal investment in the stocks we research.
Battle Road Research was one of the first eleven members of the Investorside Research Association, www.investorside.com, the only trade group that certifies its members are free of investment banking, consulting, and research for hire conflicts.
With a stroke of the pen, or more likely the click of a mouse, Amazon.com CEO Jeff Bezos approved the second largest acquisition in the company’s history, when it announced last week that it will buy privately-held Kiva Systems of North Reading Massachusetts for $775 million. Kiva’s orange-colored robots have become the rage among ecommerce companies that are looking to reduce labor costs and collapse the time between a website order and shipment.
Kiva Systems, which opened a new 160,000 square foot facility in May of 2011, had risen to about $100 million in annual revenue, and an unknown level of profitability. As a venture-backed start-up that had undergone a management shakeup two years ago, Kiva Systems, we surmise, had been positioning itself for an IPO, as evidenced by the hiring of a high profile CFO last year. That a bird in the hand may well be worth two in the bush certainly explains the motivation of Kiva’s owners to sell the company.
The same, however, cannot be said of Amazon.com, whose motivation to buy Kiva Systems is less obvious.
Amazon’s acquisitions of recent years, including Audible, Zappos, and Quidsi, the parent of Diapers.com, added new products to sell over its websites. Kiva Systems, on the other hand, makes robots that help retail and ecommerce companies manage their warehouse operations. To be sure, Amazon.com has invested heavily in website development and other technology infrastructure since its inception, and Kiva certainly fits into Amazon’s strategy to add millions of square feet of fulfillment center capacity each year around the world.
And yet, if Amazon.com was already a Kiva Systems customer—and presumably had the ability to purchase tens of millions of dollars of robots over the next several years—why would it pay eight times revenue when there is no evidence to suggest that Amazon has ever paid more than three times revenue—and often substantially less—for any company it has acquired in recent memory?
Theories abound. Could it have been that Kiva gave Amazon a glimpse into its future product plans, which in turn led it to believe that such technology in the hands of its competition would reduce its competitive advantage? Or could it have been a logistics automation vendor that lured Amazon into a bidding war for Kiva?
After reflecting on these questions, we conclude that Amazon.com bought Kiva for four reasons:
Against all odds, Kiva Systems founder Mick Mountz built a substantial enterprise, selling orange colored robots capable of performing incredible feats of industrial strength and cunning. As a replacement for conveyor belts, and human beings wandering miles of warehouse space, Kiva’s robots are able to locate and lift loads of several thousand pounds, moving palettes over a warehouse floor, even in conditions of poor lighting, and ventilation. The labor cost reduction stemming from the elimination of workers who walk several miles each day to retrieve goods from remote parts of the warehouse is a key benefit cited by Kiva’s customers. As the fulfillment center becomes the physical store, and the website a cash register for the retailer, Kiva has become an integral part of many ecommerce vendors’ fulfillment efforts.
Another benefit is making the most obscure and infrequently ordered products as accessible as the most popular items, a key differentiator for an ecommerce site versus a physical store, and one of the many reasons that Amazon.com has been so successful against its brick and mortar competitors.
Just as brick and mortar retailers were keen to stock up on inventory management and replenishment systems in the 80s and 90s for fear of getting pushed out of business by Wal-Mart, so have the country’s leading retailers and ecommerce sites been stocking up on Kiva Robots for fear of being upended or obliterated by Amazon.
Kiva’s Many eCommerce Customers
Known Kiva customers—all of whom compete with Amazon.com in some way, shape, or form—include Staples, the Gap, and Drugstore.com (now owned by Walgreens) which chose Kiva for help in fulfilling orders drawing from a catalog of 50,000 unique non-prescription drugs and health oriented consumer items. Kiva evidently also assists in things like inventory control, forward replenishment, as well as classic pick, pack and ship. Accumen Brands, the Fayetteville Arkansas ecommerce leader that runs trailsedge.com, toughweld.com, scrubshopper.com, and babyhabit.com, was able to install and get Kiva up and running in its 400,000 square foot warehouse in 14 weeks.
Dillards, the multi-channel US retailing giant with annual sales exceeding $6 billion, and 294 sore locations and 13 clearance centers across 29 states also utilizes Kiva, as does Timberland, Dickies, Fisher Price, Under Armour, Crate & Barrel, Toys R Us, Office Depot, SaksFifth Avenue, and Dansko, the footwear maker that ships its shoes to over 2,500 US and international locations. The Gilt Groupe found that it could process orders from website customer click to fulfillment in as little as 15 minutes. Even Follett Corp. the venerable 150 year-old, privately held purveyor of, among other things “pre-owned” textbooks for college students, has been using Kiva for order fulfillment through its stores and website.
To make things easier for retailers, Kiva announced a robot rental program in June of 2011, designed to help ecommerce fulfillment centers handle peak demand during the holiday season, thus easing the burden to purchase a basic system, which is estimated to be in the vicinity of $5 million or so.
Amazon’s Rising Fulfillment Costs
In each of the last two years fulfillment expense—excluding stock-based compensation—has outstripped revenue growth at Amazon.com. Though each of Amazon.com’s operating expense line items, which include marketing, technology and content, and general and admin, have all risen in excess of sales growth, fulfillment expense may be the most labor intensive of Amazon’s operations, and likely susceptible to further automation.
Fulfillment costs in 2011 were $4.4 billion. Assuming that Amazon can shave as much as 10 percent from its fulfillment expenses annually, the acquisition may pay for itself in as little as two years—not to mention the incremental revenue Amazon can generate from selling robots to its competitors, as well as other industries. The ability to avoid additional labor costs during peak shopping seasons, by deploying more or smarter robots, is a benefit that Amazon will reap as well.
In the mean time, Amazon shows now sign of letting up on fulfillment center expansion as it opened 17 new fulfillment centers in 2011, bringing the total to 69 world-wide. This year, it plans to open another 17.
Amazon.com as eCommerce Sphinx
Amazon has stated that it intends to continue to conduct business with Kiva’s customers, most of whom are dyed in the wool competitors. At first glance this might appear to be preposterous. However, when one considers that Amazon licenses elastic cloud computing resources to Netflix even as it competes head to head against it in online movie rentals, and that Amazon sells books that it publishes under its own imprint— alongside books from Random House and virtually every other book publisher—as well as new and used books from their party merchants, one begins to get a sense of how large and intertwined with its competitors are Amazon’s operations.
The extent to which Amazon’s ecommerce competitors will continue to buy robots from a wholly owned subsidiary of Amazon is unclear. The acquisition may provide the opportunity for other robot companies to fill the void. These include privately-held Seegrid, a robotic technology company based in Pittsburgh, whose solution is working at Cabela’s.
Fear of Kiva Falling into the Wrong Hands
An unanswered question that lingers in our mind is why Amazon.com paid eight times revenue for Kiva, when a Kiva IPO certainly would have valued the company at a much lower EV-to-sales multiple. While Wal-Mart has publicly claimed that it was not interested in buying Kiva, we find it hard to believe that there were not other companies who may have been approached by Kiva’s private equity owners, and who may have placed a bid for the company, given the success of its customers, its unique technology, and the large opportunity for robot sales into ecommerce and other industries.
The desire to achieve cost reduction and faster order fulfillment times only partially explains Amazon’s desire to buy Kiva. More likely, there are four other reasons: the desire to secure access to a future flow of robots ahead of its competitors; the ability to drive Kiva’s software development efforts in Amazon’s direction; the preference to customize Kiva’s robots for its proprietary warehouse operations, and finally the necessity to keep Kiva out of the hands of another suitor that may have wanted to point the company’s orange robots in a new direction.
For Immediate Distribution
Monday, April 2, 2012
(WALTHAM, MA) Battle Road Research (www.battleroad.com), an independent stock research firm focused on the technology, health science, consumer, and renewable energy sectors, has announced that company President Ben Z. Rose will participate in the Bloomberg Technology Roundtable, a featured event at the annual Investorside Research Conference in New York City on Tuesday, April 3rd. The conference showcases thought leadership from the industry’s leading independent research companies, all of whom refrain from investment banking, and research for hire.
This year’s conference will feature a Technology Sector Roundtable hosted by Anand Srinivasan, semiconductor and hardware analyst at Bloomberg Industries. The panel theme is entitled The Emergence of the Technology Sector from the Prolonged Recession: What has Changed and What Hasn’t? Topics to be discussed include consumer electronics and social media, corporate Capex and ROI Measurements in hardware and software, unstructured “Big Data,” and the implications for various companies throughout the technology landscape.
Battle Road’s technology research is focused on internet, software, and hardware companies that are poised to capture growth opportunities in ecommerce, online advertising, cloud computing, social media, and digital manufacturing. Through its impending launch of Small Cap Snapshots, Battle Road is also on the lookout for stocks that have been overlooked by Wall Street and regional investment banks, as well as IPOs from the last two years that have fallen off the radar, or may have little coverage beyond the research reports written by their underwriters.
About Battle Road Research
Battle Road Research, an equity research firm, provides an independent voice on technology, health science, consumer, and renewable energy stocks. Our research process combines rigorous financial analysis with insights gleaned from industry sources. Since our inception in 2001 we have refrained from investment banking, company-paid reports, and personal investment in the stocks we research. Battle Road has been a member of the Investorside Research Association since its inception in 2002. Investorside monitors and certifies that its members do not perform investment banking or research for hire, thus avoiding the conflicts of interest elsewhere rampant within the equity and fixed income research business. For each of the last three years, Battle Road has received an award for its research coverage from Investorside, including the Thought Leadership in Technology award.
Ben Z. Rose, President
Battle Road Research
781-894-0705, ext. 204
For Immediate Distribution
Monday, March 26, 2012
Battle Road Research Announces Small Cap Snapshots
A New Service focused on Scouting Out Small Cap Ideas
(WALTHAM, MA) Battle Road Research (www.battleroad.com), an independent stock research firm focused on the technology and consumer sectors, has announced Small Cap Snapshots, a new service designed to help fund managers and analysts scout out small cap ideas. The initial focus will be on companies located in New England, with stock market valuations under $1 billion.
“We see a growing number of intriguing small cap companies in our backyard and beyond that have been overlooked by Wall Street and regional investment banks,” according to Ben Z. Rose, President of Battle Road Research. “A second group of companies consist of IPOs from the last two years that have fallen off the radar, or may have little coverage outside of the investment banks that took them public. These companies represent fertile ground for a fresh, independent perspective. We believe that Small Cap SnapShots will be a timely addition to our clients’ research process,” said Rose.
Combining fundamental research with key financial metrics, Battle Road’s Small Cap Snapshots are designed to help fund managers and analysts screen for investment ideas in the technology and consumer sectors. Small Cap Snapshots are available immediately to Battle Road Research clients through its website at www.battleroad.com. A formal launch of the service will take place on Patriot’s Day, Monday, April 16.
Established in 2001,Battle Roadis a research-only firm, not an investment bank, not a broker dealer, and not an asset manager. Unlike Wall Street and regional investment banks who are paid by the companies they research,Battle Roaddoes not accept –nor has it ever accepted— a dime from any company that it researches.
“As we set out in search of investment ideas for our clients, the company management teams with whom we meet will know that we are not seeking a quid pro quo for research coverage. Specifically, we are not interested in placing our name in the hat for future public offerings, lining up convertible debt, or pitching M&A ideas. These are services provided by the investment banks,” said Rose.
“Our research has been battle-tested for ten years in the institutional marketplace by some of the world’s leading portfolio managers and analysts. We are confident that Small Cap Snapshots will help our clients seek out new investment ideas, and will further our reputation as a research firm free from the influence of investment banking,” Rose concluded.
About Battle Road Research
Battle Road Research, an equity research firm, provides an independent voice on technology and consumer stocks. Our research process combines rigorous financial analysis with insights gleaned from industry sources. Since our inception in 2001 we have refrained from investment banking, company-paid reports, and personal investment in the stocks we research. Battle Roadhas been a member of the Investorside Research Association since its inception in 2002. Investorside monitors and certifies that its members do not perform investment banking or research for hire, thus avoiding the conflicts of interest elsewhere rampant within the equity and fixed income research business. For each of the last three years, Battle Roadhas received an award for its research coverage from Investorside, including the Thought Leadership in Technology award.
We welcome investors to visit our website at www.battleroad.com
Ben Z. Rose, President
781-894-0705, ext. 204
Data backup, storage, and recovery systems, once affordable for only the largest corporations and elite government agencies, are now accessible to mid-sized corporations, small businesses, and every day PC users. The sea change has occurred largely as a result of falling storage costs. Six years ago, the storage cost per gigabyte (GB) was $10.00. The price fell to $4 per GB in 2008, and to $2 per GB in 2011, according to data gathered by IDC. As an insurance policy against hard drive failure, accident, and theft, low priced hard-drives, flash drives and discs have become common for consumer and small business data back up.
The falling cost of storage has made it compelling for consumers to store more data on their computers, including storage intensive media, such as pictures and videos. At the same time, the proliferation of mobile computers, including laptops, notebooks, netbooks and tablet computers, coupled with smart phones have created a need for more frequent backup, as the probability of loss or theft has risen significantly. 247 million laptop, notebook and netbook computers were shipped around the world in 2010, along with 146 million desktop PCs, according to market researcher IDC. Tablet PCs have quickly arisen to contribute another 10 million –plus units annually.
The rising use of the internet for all things digital, and the increasing trust that consumers and small businesses place in cloud computing, with its data encryption technologies and storage on remote servers located in often far away data centers, has created a new market for data backup, based in the cloud, and accessible at an affordable price.
Carbonite’s initial focus and by far the lion’s share of revenue that drives the business today is the home-based Windows and Mac market, where consumers pay a nominal $59 per year fee for an insurance policy against the aforementioned risks. Competition is widespread in this market, with some companies offering free storage, or storage bundled with other products. Nevertheless, Carbonite has developed a series of competitive advantages based on its brand awareness, which emphasizes trust, as well as its technology infrastructure, and, thus far, management execution.
Carbonite has many competitors in both the consumer and small business segments, as the barriers to entry to the market are quite low. However, just like in the early days of cloud-based salesforce automation, when Salesforce.com amassed a large market position based on the simplicity of its solution, combined with strong sales and marketing, so too does Carbonite have the opportunity to gain share in its addressable market, despite the existence of many competitors at this stage of the market’s development.
In the consumer market, Carbonite faces competition from a large number of little known players, as well as large behemoths, that have seized upon data storage as a way to keep customers in the fold. Thus, Apple, through its iCloud service, Microsoft, through its SkyDrive service, and Amazon.com, for its Kindle Fire tablets, is bundling free storage services with their products. While this poses a threat to Carbonite’s rate of growth, the company’s affordable, easy to access service, which emphasizes backup and restore –not just storage—across multiple computer platforms, should enable the company to achieve solid growth.
In the small business market, competitors include Symantec, McAfee (now a division of Intel). Both companies bundle backup and restore capabilities into their security software suites, but the products are not easily accessed, and are often difficult to use. EMC’s Mozy division delivers cloud-based backup, and currently serves over 70,000 small businesses through its subscription-based services. While EMC has made more than a symbolic entry into the cloud-based backup and storage market, the company continues to derive the lion’s share of its sales from large disk storage systems which it sells to large corporate customers that utilize their own data centers, rather than harness storage in the cloud. Rackspace Hosting also competes in the market, and other competitors include Dropbox, Box, CommVault, Databarracks, and Zamanda.
With its new $229 and $599 small business backup service, Carbonite will be quite competitive with other small business offerings on the market, including those offered by Mozy, Backblaze, and DropBox. The Carbonite offerings will be anywhere from 20 to 75 percent less than equivalently packaged configurations from these competitors, based on current prices.