Why Apptio Inc (NASDAQ:APTI) Stock Is A Hidden Gem

- July 2, 2017

Apptio Inc (NASDAQ:APTI) provides technology business management software solutions with a focus on a company’s information Technology ((IT)) spend. The platform can be used on the cloud or off the cloud. The company was founded by Sunny Gupta, Kurt Shintaffer and Paul McLachlan on October 01, 2007 and is headquartered in Bellevue, Washington, USA.  Apptio went public on September 23, 2016, floating at US$16.

Apptio Inc (NASDAQ:APTI) Stock Ready To Benefit As A Leading IT Software Management System Provider

Apptio Inc (NASDAQ:APTI) Stock is set to benefit from the cloud which is forecast to grow at 21% CAGR to 2020.  The total cloud storage market is forecast to reach US $141 billion by 2019, with Software-as-a-Service ((SaaS)) growing to a market size of US $11.6b by end 2020. This represents large growth potential from now until 2020 for Apptio.  Note that not all of the US $11.6b is focused on the IT management spend.

Source

In 2016, the IT spend was US $2.7 trillion on global IT.  Apptio sees their IT management addressable market as a US $6 billion (0.22% fee x $2.7 trillion) opportunity. Viewed another way, if Apptio was able to get only 5% market share of the forecasted US $11.6b SaaS spend by 2020, that would mean they would have revenue of US $580m by 2020, around 3.6x their 2016 revenue. Added to this would be their global revenues.

The business

The company was started as a service that could help the Chief Information Officers ((CIOs)) of organizations manage the business of information technology ((IT)) more efficiently. With the company’s SaaS cloud-based platform, Apptio offers cost transparency, IT planning and benchmarking, business insights, and bill of IT. Or put simply, Apptio software system “manages (automates) the work and operations of IT.”

Source

Below is an example of the software and how it helps CIOs.

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Apptio’s clients

Apptio cleverly founded the Technology Business Management Council – a non-profit organization that has more than 2,900 CIOs. This has led to them very quickly and cost effectively accessing their client base.

Apptio’s main clients are large US companies representing 73% of Apptio’s revenue.  Apptio has over 360 corporate clients with an average subscription contract value of US $400,000.  Revenue is derived from both monthly subscription fees, and/or service fees.

Revenue growth

2016 revenue was US $161 million, up 25% from 2015. Q1, 2017 revenue was US $44 million (up 19% on Q1, 2016).  Apptio forecasts their 2017 revenue will reach US $179-182m, or about a 12% increase on 2016. There is a strong chance the company will exceed these forecasts.

 

Apptio’s current losses are attributed to its high expenditure on R&D and sales and marketing.  Apptio is forecast to be profitable in 2019.

Valuation

Apptio (NASDAQ:APTI) Stock has a market cap of US 710m and no debt. Due to no profits there is no current PE. Apptio Stock currently trades on a 2018 EV/revenue multiple of 3x, which is well valued compared to software platform peers.

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