Acquisitions Of TIE Kinetix And SupplyPike Will Improve Operational Efficiencies

Key Takeaways

• Acquisitions and e-invoicing integration may enhance SPS Commerce's international presence and operational efficiencies, boosting revenue and customer retention.
  
• Community enablement campaigns and long-term growth strategies focus on expanding wallet share and revenue from existing and new customer segments.
  
• Potential integration challenges and increased costs from acquisitions may impact revenue growth, while reliance on ERP migrations and stretched resources pose risks.

Catalysts

Provides cloud-based supply chain management solutions in the United States and internationally.

• The acquisition of TIE Kinetix and the integration of e-invoicing capabilities into SPS's fulfillment product may expand SPS Commerce's presence in Europe, potentially increasing revenue through international market growth.
  
• The acquisition of SupplyPike and automated invoice deduction management solutions are expected to enhance operational efficiencies for customers, which could lead to higher customer retention and an increase in wallet share, thus positively impacting earnings.
  
• The ongoing success of community enablement campaigns, despite their current focus on existing customers, indicates potential for future revenue growth as SPS shifts its focus towards unpenetrated customer segments within these networks.
  
• Strong pipeline visibility through 2025 for community enablement, with a focus on increasing wallet share among existing customers, suggests continued revenue growth through the upselling of additional products and services.
  
• Long-term guidance emphasizes a balanced growth approach with expectations for annual revenue growth of 15% or greater and adjusted EBITDA growth of 15% to 25%, supporting an increase in net margins and earnings over time.

SPS Commerce Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SPS Commerce's revenue will grow by 16.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 12.8% today to 11.5% in 3 years time.
• Analysts expect earnings to reach $111.6 million (and earnings per share of $3.16) by about January 2028, up from $78.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $127.4 million in earnings, and the most bearish expecting $84.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 83.2x on those 2028 earnings, down from 93.8x today. This future PE is greater than the current PE for the US Software industry at 43.6x.
• Analysts expect the number of shares outstanding to decline by 2.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.95%, as per the Simply Wall St company report.

SPS Commerce Future Earnings Per Share Growth

Risks

• The potential integration challenges and regional differences in European markets following the TIE Kinetix acquisition could complicate SPS Commerce's expansion efforts, potentially impacting revenue growth and market penetration.
  
• Reliance on large-scale ERP system migrations and community enablement programs for adding new customers presents a concentration risk. A slowdown in these activities due to economic uncertainties could limit new customer acquisition and revenue growth.
  
• Increasing costs or complexities related to the integration of recent acquisitions, such as SupplyPike and Traverse Systems, could put pressure on net margins and delay expected earnings benefits.
  
• The strategy of balancing both revenue and EBITDA margin growth might stretch resources and limit investments in necessary areas, potentially hindering competitive positioning and long-term profitability.
  
• Execution risk related to expanding and cross-selling a growing product portfolio to existing customers suggests that any misalignment might impact wallet share growth and long-term revenue generation.

Valuation

• The analysts have a consensus price target of $216.86 for SPS Commerce based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $245.0, and the most bearish reporting a price target of just $187.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $969.2 million, earnings will come to $111.6 million, and it would be trading on a PE ratio of 83.2x, assuming you use a discount rate of 6.9%.
• Given the current share price of $196.0, the analyst's price target of $216.86 is 9.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.