• The market for software defined communication cloud platforms is growing fast. Much bigger Twilio is growing at 77%, Pareteum grew at 129% in Q3.
• IoT will give another fillip to revenue growth.
• The shift to the cloud is in the very early innings, with most of the market served by legacy company solutions on premise. Northland analyst Michael Latimore believes 90% of the addressable market is still served by legacy on-premises software today
• Pareteum has a SaaS platform business model that almost invariably commands very high valuations on Wall Street, anyware from 5x to 20x sales.
• Pareteum seems particularly well placed, given the rapid progress the company has made on basically any metric. Revenue doubled from Q1 to Q3, 18 months ago it had 4 customers, now it has more than 100, Three-year backlog exploded from $147M at the end of 2017 to nearly $700M at the end of February 2019, etc.
• The explosion in 3-year backlog gives great revenue visibility, Wall Street usually likes that.
• The business model contains strong inherent operational leverage. Revenue per employee went from $277K in Q3 2017 to $492K per employee in Q3 2018. It's almost like hooking customers up and collecting the rent. The acquisitions will bring this figure down again, but that's temporary.
• Customers are happy, the dollar net retention rate is 147%, for every dollar in contract they buy 47 cent more.
• The acquisitions of Artilium and iPass offer significant revenue and cost synergies.
• The company's shares are mis-priced due to unfamiliarity with the investing public. Selling at just 3x 2019 revenues, and with some assumptions (see here for a very detailed approach) about backlog conversion, it could very well be selling at just over 1x 2021 sales. We think 5x-10x sales would be more normal at the minimum, and believe we will get there when this name becomes more familiar with investors.

'Mrebs' pid='82899' datel Wrote:What do you think our sales multiple will be in 2020 with EPS positive and revs between 300-400, maybe more pending new contracts. As I see it TWLO is near 20X and not profitable yet, so it is possible as the sector heats up and profitability is proven we see multiples higher then 20X?

Well, there are quite a few "if's" in there. I'm not at all sure 2020 revenues will be $300M+. From memory, the company's guidance was $202M, at least in the presentation for investors for the iPass acquisition.

EPS could be positive, from that same presentation the non-GAAP 2020 EPS guidance is $0.52.

Twilio is expected to turn a small profit this year and while it's backward multiple is indeed 20x, it's forward multiple is something like 11, a bit higher on an EV basis as they have quite a bit of debt.

["He served as President and Chief Executive Officer of PTT Telecom Netherlands, US, Inc., where he established its American subsidiary and set the strategy for its international ventures."]

Didn't know that!

You have a point though, he's very experienced.

I did already sneek in another point in the list, the one about the dollar net retention rate

'admin' pid='82903' datel Wrote:

["He served as President and Chief Executive Officer of PTT Telecom Netherlands, US, Inc., where he established its American subsidiary and set the strategy for its international ventures."]

Didn't know that!

You have a point though, he's very experienced.

I did already sneek in another point in the list, the one about the dollar net retention rate

Good reminder of that 147% dollar net retention rate, that's actually a very impressive statistic.

That's a neat ten point summary, admin. It's hard not to get excited with just a few days left to fourth quarter figures and, probably much more important, 2019 outlook.

My favorite part is the operational leverage:

• The business model contains strong inherent operational leverage. Revenue per employee went from $277K in Q3 2017 to $492K per employee in Q3 2018. It's almost like hooking customers up and collecting the rent. The acquisitions will bring this figure down again, but that's temporary.

And that operational leverage kicked in pretty early, here from a 2017 article:

Revenues have exceeded analyst expectations for a few quarters in a row at Pareteum. Revenue backlog jumped 115% from $60 million at the end of Q2 2017 to a record breaking $129 million on November 30, 2017. A key performance measure of management’s effectiveness, revenue per employee increased to a record $222,139 in Q3 2017 marking a 4-fold increase over Q4 2015. Positive adjusted EBITDA was achieved for the first nine months of 2017, while the company is approaching break-even-in both EBITDA and net income. Gross margins that have recently been in the 70% range, hit 77% in Q3 2017, and are driving the company towards profitability. The beauty of software-based cloud communications solutions is superior economics for Pareteum, as well as for its growing list of customers.

Basically, it's like hooking customers up and then collecting the dues.

'stpioc' pid='82933' datel Wrote:

Basically, it's like hooking customers up and then collecting the dues.

Well, that's one way to put it, there is a little more to it than that, but actually not a whole lot. That is, it's a businessmodel which:

• Has network effects (the more agreements they have with service providers over the world, the more difficult it is for customers to replicate that and the more valuable their service becomes, which makes it easier to hook up new customers and service providers.
• (Mostly) fixed cost, it's indeed a bit like hooking customers up and collecting the rent after that, billing is per usage, device, or connection, that is, marginal cost are very low hence one can see these large operational leverage when revenues grow.