Ebix Leads Next Wave Portfolio to Higher Ground
As you can see, last week our Equity Trades portfolio was far more volatile than our Investments portfolio – in a good way! The average gain on its holdings was 3.5% compared to 1.3% for its benchmark, the NASDAQ Composite Index. Leading the way was Ebix Inc. (EBIX), whose sophisticated cloud platform for the insurance industry was reported last week to be chosen as the vendor of choice by Placing Platform Limited for the enormous London insurance brokerage market. The stock jumped 18% on the news.
That big jump in value overshadowed what was an excellent week for Nimble Storage (NMBL), whose stock price gained almost 13% after announcing that it passed the 5,000 customer threshold. While that may seem to be a fairly random reason for investors to suddenly take notice of the company, in the momentum-driven tech sector it doesn’t take much for perceptions to change quickly.
Unfortunately, Varonis Systems (VRNS) changed perceptions in a very negative way last Tuesday after announcing quarterly and year-end results that did not live up to expectations. In some respects the news was not all bad, as total revenues for the year increased 36% over the prior year. But the company’s GAAP operating loss widened substantially, from $5.8 million in 2013 to $17.3 million last year.
Other top performing stocks last week were FireEye (FEYE) gaining 9.2% to continue its torrid run of late, and NICE Systems (NICE) which move up 8.5% and has also been on a tear lately. All of which made the 4.3% gain from Paycom Software (PAYC) seem somewhat pedestrian in comparison, even though that was triple what the index returned. In our Portfolio Update below Rob DeFrancesco reviews Paycom as its stock price moves into uncharted territory.
| STI Portfolios | ||||
| INVESTMENTS | (close px) | (close px) | ||
| stock | symbol | 13-Feb | 20-Feb | Return |
| Apple | AAPL | $127.08 | $129.50 | 1.9% |
| AT&T | T | $34.66 | $34.08 | -1.7% |
| CA Tech | CA | $32.38 | $32.83 | 1.4% |
| Cisco | CSCO | $29.43 | $29.61 | 0.6% |
| Intel | INTC | $34.36 | $34.41 | 0.1% |
| Micron | MU | $31.85 | $32.03 | 0.6% |
| Microsoft | MSFT | $43.56 | $43.86 | 0.7% |
| Oracle | ORCL | $43.93 | $43.77 | -0.4% |
| Qualcomm | QCOM | $70.88 | $71.52 | 0.9% |
| Ricoh | RICOY | $9.88 | $10.46 | 5.9% |
| Seagate | STX | $61.84 | $62.18 | 0.5% |
| Verizon | VZ | $49.31 | $48.97 | -0.7% |
| Western-Digital | WDC | $24.06 | $23.93 | -0.5% |
| portfolio average: | 0.7% | |||
| NASDAQ Composite | IXIC | 4893.84 | 4955.97 | 1.3% |
| NEXT WAVE | close | close | ||
| stock | symbol | 13-Feb | 20-Feb | Return |
| Ebix | EBIX | $23.80 | $28.13 | 18.2% |
| FireEye | FEYE | $42.26 | $46.15 | 9.2% |
| Marketo | MKTO | $28.24 | $27.53 | -2.5% |
| Nice | NICE | $54.29 | $58.88 | 8.5% |
| Nimble Storage | NMBL | $23.19 | $26.17 | 12.9% |
| Paycom S’ware | PAYC | $32.37 | $33.77 | 4.3% |
| Silicon Motion | SIMO | $29.08 | $29.69 | 2.1% |
| Teradata | TDC | $45.73 | $45.29 | -1.0% |
| Varonis Systems | VRNS | $37.34 | $29.88 | -20.0% |
| Zynga | ZNGA | $2.24 | $2.32 | 3.6% |
| portfolio average: | 3.5% | |||
| NASDAQ Composite | IXIC | 4893.84 | 4955.97 | 1.3% |
NASDAQ Composite Index:
Friday, February 20 = 4,955.97
Trailing 12 months = + 16.8%
Trailing 7 Days = + 1.5%
Trailing 4 Weeks = + 7.7%
Next Wave Portfolio Update—Paycom Software
By Rob DeFrancesco
Paycom Software (PAYC) stock last week traded to a new post-IPO high of $35.12 (116% above the price at the time it was added to the Next Wave Portfolio last August) after the company, a provider of cloud-based human capital management (HCM)/payroll solutions, reported fourth quarter revenue rose 45%, to $44 million, easily topping the consensus estimate of $40.4 million and the high end of the guidance range of $40 million to $41 million. Per-share earnings of six cents beat the consensus by two cents. Gross margin of 82.8% was up from 80.4% in the year-ago quarter.
Paycom, focused on bringing in new customers with at least 100 employees, continues to gain traction at larger midsize accounts. As an example, the company in Q4 added a healthcare provider with 3,700 employees that had been using a variety of vendors for payroll, time & attendance and benefits management. Paycom was able to provide the customer with all of these solutions under one umbrella as part of its consolidated platform. The customer not only was able to better manage its complete HR operations from a single dashboard, it could do so at a lower overall cost.
Helped along by the opening of five new sales offices last year, Paycom’s 2014 revenue of $150.9 million was up 40%. Last month, Paycom opened five additional U.S. sales offices (in Cincinnati, Kansas City, Nashville, Pittsburgh and Brooklyn) to help drive the next phase of growth. Most new sales teams take 24 months to reach full capacity and maturity, so these latest offices are catalysts for meaningful growth in 2017 and beyond.
Now with a total of 36 U.S. sales offices, Paycom could easily get to “well over 100” in this country alone before the need for international expansion, according to CEO Chad Richison. The total addressable market of $20 billion in the U.S. provides Paycom with ample room for market share gains. Interestingly, Paycom today primarily replaces HR solutions from other cloud-based vendors, not on-premise solutions offered by legacy vendors, indicating the company’s platform provides even better ROI than many of the industry’s newest competitors.
One way Paycom stays out ahead of the competition is by constantly bringing new functionalities to its platform, adding these features last year: push reporting, job candidate tracking, employee surveys and employee schedule sharing. The company’s new Affordable Care Act component, included on the platform at no extra charge, has seen strong uptake, as the solution helps customers stay in compliance with the evolving requirements of the legislation.
Paycom Learning is the newest functionality on the platform. Just launched, the learning management system (LMS) enables customers to offer educational modules to their employees via a convenient browser-based user interface. With this LMS solution, customers can provide video training courses for new hires as well as certification/recertification courses for current employees. The company looks for customers with as few as 50 employees to deploy its LMS solution.
As Paycom continues to build out its platform of offerings, it moves into a stronger competitive position against other pure-play, cloud-based HCM providers (including Ultimate Software, Cornerstone OnDemand and Paylocity) because customers are looking for the most complete package at the best ROI.
Paycom is spending most of its R&D dollars these days on product creation, always looking to add new features to the solution set, something that makes the company’s platform more attractive for new accounts and “sticky” in terms of keeping current customers from moving to a competing offering.
For Q1, revenue guidance of $49 million to $50 million came in above the consensus estimate of $47.9 million. For 2015, top-line guidance of $194 million to $196 million (above the consensus of $190.2 million) indicates growth of 29% at the midpoint. Gross margin for the year is expected to range between 78% and 82%.
Paycom Software is a ‘Hold’ in the Next Wave Portfolio.
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