Based in Burlington, Massachusetts, Demandware (proposed DWRE) scheduled a $74 million IPO with a market capitalization of $378 million at a price range mid-point of $13.50 for Thursday, March 15, 2012.
SUMMARY
DWRE is in the “cloud-enabled e-commerce platform services” business. Anything ‘cloud-enabled’ is ‘hot’ in this year’s IPO market. So we expect DWRE to increase from its IPO price.
2011 revenue increased 53% to $57 million from $37 million. Net income declined to a loss of $1.4 million from a profit of $300,000.
VALUATION METRICS
Looking at the past six quarters we see only two profitable quarters. But the most important quarter (December) had revenue up 38% over the September quarter, a very good sign. Subscriptions (re-occurring revenue) accounted for 88% of revenue
OVERVIEW
DWRE is in the “cloud-enabled e-commerce platform services” business, a market which is expected to grow at a CAGR of 21.3% from $4.3 billion in 2010 to $11.3 billion in 2015 according to Gartner Group, a market research firm.
DWRE was formed in 2004, and initially focused on building cloud-based architecture and merchandising applications.
BUSINESS
Currently, DWRE is a leading provider of software-as-a-service e-commerce solutions that enable companies to easily design, implement and manage their own customized e-commerce sites, including websites, mobile applications and other digital storefronts.
Customers use DWRE’s highly scalable and integrated Demandware Commerce platform to create a seamless brand experience for consumers across all digital touch points worldwide.
Through DWRE’s on-demand software-as-a-service, or SaaS, platform, customers run the latest software version have access to a steady stream of new and innovative e-commerce functionality as soon as it becomes available.
By using DWRE’s platform, customers avoid the need for a large upfront investment in on-premise hardware infrastructure and in customized software that is difficult and expensive to implement, upgrade and maintain.
They also avoid the limitations of generic vendor-created e-commerce solutions that typically do not offer the flexibility and functionality necessary for merchants and retailers to create, manage and control their own customized online brand presence.
Through DWRE’s network of data centers, DWRE continually monitors the environment in which customers’ e-commerce sites operate for performance, availability and accuracy of content delivery.
GROWTH
From December 31, 2007 to December 31, 2011, the number of customers using DWRE’s platform increased from 10 to 101, a 78.3% compound annual growth rate, or CAGR, and the number of e-commerce sites operating on the platform increased from 19 to 361, a 108.8% CAGR.
Customers include multinational corporations, large retailers and branded consumer product manufacturers, such as Barneys New York, Burton, Columbia Sportswear, Crocs, House of Fraser, Jewelry Television, Jones Apparel Group, Lifetime Brands, L’Oreal and neckermann.de.
REVENUE SHARE
DWRE has structured customer contracts to align interests with those of customers by participating in a share of customers’ gross revenue processed on DWRE’s platform.
DWRE derives subscription revenue from fees paid by customers for access to DWRE’s e-commerce solutions during the term of subscription contracts, which is typically three years and ranges from one year to seven years.
COMPETITION
Primary sources of competition include:
- In-house development efforts by potential customers or their web consultants;
- E-commerce application vendors, such as IBM (IBM), Oracle (ARCL)/ATG, eBay (EBAY)/Magento and hybris;
- Full-service e-commerce business process outsourcers, such as Digital River (DRIV) and eBay/GSI Commerce;
- Providers of hosted on-demand subscription services, such as MarketLive and Venda.
64% of DWRE’s stock is held equally by two Massachusetts-based venture capital firms: North Bridge Venture Partners and General Catalyst Partners.
USE OF PROCEEDS
DWRE expects to net $65.6 million from its IPO, with the proceeds allocated for working capital and general corporate purposes.