Seeking Alpha • Sep 16
Zenvia Grows Revenue But Operating Losses Remain Elevated
Summary
Zenvia went public in July 2021, raising approximately $150 million in a U.S. IPO.
The firm provides a variety of customer communications and experience software to companies in Latin America.
ZENV has grown revenue and gross profit, but operating losses continue to mount.
I'm on Hold for ZENV stock until management can make a substantial turn toward operating breakeven.
A Quick Take On Zenvia
Zenvia (ZENV) went public in July 2021, raising approximately $150 million in gross proceeds from an IPO that priced at $13.00 per share.
The firm provides businesses in Latin America with a modern customer experience software and services platform.
For the near term, I’m on Hold for ZENV until management can show a meaningful turn toward operating breakeven while continuing to produce 30% or more growth.
Zenvia Overview
São Paulo, Brazil based Zenvia was founded to develop a customer communications system for companies to digitally interact with their customers and prospective customers across the entire customer journey.
Management is headed by founder and Chief Executive Officer Cassio Bobsin, who was previously the founder of WOW Accelerator, a large independent accelerator in Brazil.
The company’s primary offerings include:
Marketing campaigns
Sales communication
Customer service
Client engagement
APIs, chatbots and other tools
Customer communication channels
The firm pursues a ‘land and expand’ approach to gaining enterprise clients, which is common for enterprise software firms providing a SaaS solution.
Zenvia’s Market & Competition
According to a 2018 market research report by Research and Markets, the global customer experience management market is projected to grow to $21.3 billion by 2024.
This represents a forecast CAGR of 22% from 2018 to 2024.
The main drivers for this expected growth are the growing needs of customers for a personalized customer experience throughout their purchase journey.
Also, experience management helps enterprises grow their brands, increase customer loyalty, reduce client attrition and improve their operations.
Major competitive or other industry participants include:
Infobip
Sinch (CLCMF)
Twilio (TWLO)
MessageBird
Zendesk (ZEN)
Salesforce (CRM)
Take
Yalo
Qualtrics (XM)
Others
Zenvia’s Recent Financial Performance
Total revenue by quarter has risen per the following chart:
9 Quarter Total Revenue (Seeking Alpha)
Gross profit by quarter has also grown accordingly:
9 Quarter Gross Profit (Seeking Alpha)
Selling, G&A expenses as a percentage of total revenue by quarter have trended upward in recent quarters:
9 Quarter Selling, G&A % Of Revenue (Seeking Alpha)
Operating income by quarter has remained negative and generally worsened in recent quarters:
9 Quarter Operating Income (Seeking Alpha)
Earnings per share (Diluted) have remained negative over the past 9 quarters, with one exception:
9 Quarter Earnings Per Share (Seeking Alpha)
(All data in above charts is GAAP)
Since its IPO, ZENV’s stock price has fallen 89.3% vs. the U.S. S&P 500 index’s drop of around 11.9%, as the chart below indicates:
52 Week Stock Price (Seeking Alpha)
Valuation And Other Metrics For Zenvia
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM]
Amount
Enterprise Value / Sales
0.65
Revenue Growth Rate
50.4%
Net Income Margin
-9.3%
GAAP EBITDA %
-14.0%
Market Capitalization
$78,070,000
Enterprise Value
$94,020,000
Operating Cash Flow
-$11,140,000
Earnings Per Share (Fully Diluted)
$0.65
(Source - Seeking Alpha)
As a reference, a relevant partial public comparable would be Sprinklr (CXM); shown below is a comparison of their primary valuation metrics:
Metric
Sprinklr
Zenvia
Variance
Enterprise Value / Sales
4.16
0.65
-84.4%
Revenue Growth Rate
29.8%
50.4%
69.1%
Net Income Margin
-20.4%
-9.3%
-54.4%
Operating Cash Flow
-$13,090,000
-$11,140,000
-14.9%
(Source - Seeking Alpha)
A full comparison of the two companies’ performance metrics may be viewed here.
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
ZENV’s most recent GAAP Rule of 40 calculation was 36.4% as of Q2 2022, so the firm has performed reasonably well in this regard, per the table below:
Rule of 40 - GAAP
Calculation
Recent Rev. Growth %
50.4%
GAAP EBITDA %
-14.0%
Total
36.4%
(Source - Seeking Alpha)
Commentary On Zenvia
In its last earnings call (Source - Seeking Alpha), covering Q2 2022’s results, management highlighted that the allocation of its IPO resources was toward M&A and R&D efforts.
The firm produced strong client base expansion of 37% year-over-year as the firm accelerated its transition to a SaaS company.
Management believes this is ‘just a fraction of the total addressable market for SaaS services in Latin America,’ where the company has achieved a 2% market share in the past year, per company leadership.
As to its financial results, revenue rose 50% year-over-year, while gross margin was 38%, an increase of 5% year-over-year.
Half of the revenue growth came from M&A deals and the other half from organic growth.
I could not find a reference to the company’s net dollar retention rate, which is an important metric in gaining visibility into its product/market fit and sales & marketing efficiency.