This financial tech company is gaining momentum. Zacks currently rates it a Buy.
Yodlee (YDLE)
from Game Changers
Yodlee (YDLE), a pioneer in the FinApps industry, has developed the Yodlee Financial Cloud, a secure platform that powers a growing set of FinApps. The company has designed its platform to be easily customized to suit the needs of a particular business customer. It services the small business, retail banking and wealth management industries. And its products span money and risk management, mobile solutions, big data and money movement.
Its customers include traditional financial institutions such as banks, credit card companies and brokerages. Among its customers are JP Morgan Chase (JPM), Bank of America (BAC), HSBC (HSBC), Citigroup (C), Merrill Lynch (owned by Bank of America) and Scottrade. Yodlee says it counts 11 of the 20 largest U.S. banks as customers, a client base that holds over 80% of the total assets within the country.
The company also has a rapidly growing customer base that is leveraging the power of the Internet to reach consumers. These include third-party software developers, as well as e-commerce giants Amazon.com (AMZN), PayPal (PYPL), GoDaddy (GDDY); online wealth management firms Concur (SAP), LearnVest and Clinkle; and human resources, accounting, credit and risk firms Kabbage, LifeLock (LOCK), Lending Tree (TREE) and Equifax (EFX).
The vast majority of revenue comes from subscription services (88%), while the remaining slice comes from support services.
There are four main catalysts I’m watching that should move this stock significantly higher in the years ahead.
Growth Catalyst No. 1: Disruptive Technology Is Gaining Scale
Since the company shifted from a product-focused company to a platform-driven business model in March 2012, it grew from 9.7 million users to 20 million users in the next three years. Yodlee thinks there are well over 2 billion potential end users. And while it has over 850 financial institutions as current clients, this is still only around 12% of the financial institution-specific market.
Growth Catalyst No. 2: Existing Customer Base Still Holds Tremendous Opportunities
When Yodlee gets a large financial institution to sign on, the Yodlee platform is not activated across all of the institution’s financial applications. It usually starts with a certain function, such as online banking. If that implementation goes well, there is greater likelihood that Yodlee can power other functions as well.
One of the key metrics to watch for progress here is revenue retention. Yodlee recently reported subscription revenue retention of 115%. The fact that this metric is tracking above 100% means that Yodlee is landing new clients, but is also expanding its subscription revenue within the walls of clients that it already has.
Another key metric to watch is average revenue per user (ARPU). This is the amount of revenue generated for each user on Yodlee’s platform. The higher the better, and in the last quarter ARPU was $4.58.
Growth Catalyst No. 3: Big Data Analytics Platform Could Be Transformational
Yodlee’s platform connects directly to over 14,000 data sources and 20 billion end users, data that can be screened, cleaned and packaged into analytics reports that show anonymous spending and behavioral patterns.
This is a huge competitive advantage because it allows Yodlee to sell value-added data packages to existing (and new) clients, and is possibly the biggest potential growth driver for Yodlee moving forward.
Stock Catalyst No. 4: Financial Results Continue to Exceed Expectations
In the last quarter (first fiscal quarter of 2015), subscription revenue of $21.6 million grew by 29% year-over-year, while total revenue of $24.6 million grew by 25%. At the same time, Yodlee increased full-year revenue growth guidance from a range of 21.2% - 22.4% to a range of 22.9% - 24%.
The company is not yet profitable, but it’s making progress and it should deliver positive non-GAAP earnings in the current year. Looking out over the next two years I expect revenue growth will average 20% to 25% annually, at least. And non-GAAP EPS should easily fall within $0.01 to $0.07 this year and $0.07 to $0.20 next year.
On an enterprise value-to-sales (EV/sales) ratio, Yodlee trades at 3.9 times trailing sales. This is a 20% to 40% discount to many companies in the subscription software space.
This is an off-the-radar small-cap stock that has a very compelling business model. The stock has at least 30% upside potential over the next 12 months. But looking further out, and given the truly game-changing technology, Yodlee has multi-bagger potential.
Tyler Laundon and Ian Wyatt, Game Changers, www.wyattresearch.com, 866-447-8625, July 22, 2015