8Common Disrupting The Enterprise
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8Common listed in August 2014 at 25 cents a share, and now trades at 22 cents. The stock is a very interesting play on the Asia-Pacific SaaS market, and has put in place the framework for FY16 to be potentially a transformative year.
It may only be a true minnow of the stock market, but enterprise software company 8Common Limited (8CO) is working in an interesting space – Software-as-a-Service (SaaS), which is well on the way to becoming the de facto business model for enterprise software.
SaaS is using the internet to deliver software applications to customers, from the cloud, where they are hosted. The customer does not have to buy very expensive software - and the hardware on which to run it - but simply uses the software whenever they need it, buying “units” of usage.
8 Common - which splits its headquarters between Sydney and Singapore - offers three disruptive software services as SaaS. The first, Expense 8, is an integrated, end-to-end travel and expense management software solution that manages and streamlines the end-to-end processing of employee-generated expenses. 8Common says Expense8 is a highly user-friendly system that automates the entire reconciliation tasks, eliminating the spreadsheet.
The organisation gains greater control and transparency of its company spending; saves money; and has its staff freed up to focus on business matters. Expense8 is currently being used by customers in in eight countries, including CPA Australia, Sims Metal Management, the New South Wales Department of Transport, the Australian Taxation Office, Rabobank, Woolworths, AMP and Dulux Group.
The second product, Realtors8, is a web-based content management and customer relationship management system for real estate agents and brokers. It allows agents to create personalised, customer-branded websites to list property portfolios, and integrates syndication and marketing tools that enable the agents to generate traffic, leads and maintain relationships with their clients. Like Expense 8, Realtors 8 automates many of a real estate agents’ recurring tasks, thus freeing-up their time and allowing them to focus on transacting and managing their clients' needs. Realtors 8 is being used in North America and Asia, by customers including Remax, Century 21, Sotheby’s International Realty and Coldwell Banker. 8Common says it has listed 148,000 properties for 8,000 clients, and has helped those clients sell properties worth more than $59 billion in total.
The third product, Perform 8, is a suite of innovative, online surveying solutions that are designed to assist business leaders at all levels to drive action and improvement in their teams, by measuring employee engagement and drivers that maximise employee productivity. Perform8 solutions are currently being used in seven countries, with a customer base including BMW, Woolworths, Wesfarmers, Remax, Adelaide City Council, Dulux Group, Chobani Yoghurt, Royal Sydney Golf Club, Northline and 7-Eleven.
8Common continues to round out the product offering. In January, it bought Sydney-based employee survey company, Centre for Organisational Innovation (COI). The acquisition broadened the company’s reach into the human resources (HR) market, and brought with it a high-quality client base of large Australian companies, government agencies and multi-national companies: its client list includes 7-Eleven, BMW, Wesfarmers and Brother.
8CO expects CIO’s client base to offer strong cross-selling opportunities for Expense8. The company expects the acquisition to contribute more than $350,000 in EBITDA (earnings before interest, tax, depreciation and amortisation) to the company in 2015, and be EPS-positive in the first year. 8Common chief executive Nic Lim says CIO has a strong product methodology, a blue-chip client base and a large and growing addressable market.
In May, 8Common signed a deal to buy an established Canadian real estate content management solutions provider, RPM, for up to C$850,000, expanding its real estate offering. The acquisition was funded by the issue of convertible notes to a group of sophisticated investors, including 8 Common directors and management. The software solutions that came to 8 Common in the deal – Clicksold and RealPageMaker – brought nearly 1,000 customers with them, lifting 8CO’s North American client numbers to about 3,000.
8Common expects to be able to generate strong up-sell opportunities: the deal also included a product platform, ‘WordPress,’ which 8CO expects to help expand its Asian client base, and there were additional products in the form of map and Internet Data Exchange (IDX) tools. 8Common expects the acquisition to contribute approximately $500,000 in revenue and $200,000 in EBITDA a year to the company, and be EPS-positive in the first year.
In June, 8CO announced one of its biggest deals with Expense 8, a deal with the New South Wales Department of Education and Communities (DEC) to use the Expense8 EMS solution on a SaaS basis to support its purchasing card solution Expense8 is expected to be to be used by up to 10,000 card holders, at the DEC head office and across all schools in NSW. The initial contract is for a period of three years, with provisions for extension for another two years. The DEC contract is expected to have a significant impact on the future profits of 8Common, with revenues commencing in late FY15. But due to the staged roll-out of the contract, 8CO did not provide specific earnings guidance related to it.
8CO has ambitious plans in the SaaS space, and for good reason: global consulting firm Frost & Sullivan predicts that the Asia-Pacific market for SaaS will grow from US$2.9 billion in 2013 to reach US$12.1 billion in 2018, with a compounded annual growth rate (CAGR) of 33%. This large addressable market is exactly where 8Common is pitching itself.
But the obvious caveat is that 8Common is a tiny company: it is capitalised at just $12 million. In FY14, 8CO earned revenue of $2.92 million, from which it made $984,000 in EBITDA and $680,000 in pre-tax profit. FY14 net profit came in at $127,933, which equated to 0.71 cents a share.
The company made a net loss at the December 2014 half-year, of $300,408, and was also in the red at EBITDA and pre-tax profit level. For FY15, the company has issued guidance for revenue of $3.1 million (up 6%), EBITDA of $500,000 (down 54%, affected by acquisition and administration costs) and pre-tax profit of $150,000, but it has not guided to a net profit figure (This guidance was issued before the DEC deal was signed.)
In FY16, the company will have the COI, RPM and DEC acquisitions contributing for a full year, which should boost the earnings figures.
8Common listed in August 2014 at 25 cents a share, and now trades at 22 cents. The stock is a very interesting play on the Asia-Pacific SaaS market, and has put in place the framework for FY16 to be potentially a transformative year. Although the low level of turnover means that an investor would have to be very patient to put together a meaningful holding in 8Common, it certainly looks like a stock with a bright future.
James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au