Selling a product or service to financial institutions is a difficult chore which is why BSD enterprise salespeople make such good coin. Once you have some traction, it becomes easier. When you tell a firm all their competitors are using your tool, they don’t want to feel left out. Once you’re selling something to everyone, upselling them more stuff becomes an easy conversation. When you see a firm that’s penetrated a large percentage of key clients in a particular domain with a software-as-a–service (SaaS) offering, you know they’re doing something right. Intapp is one such SaaS company.
About Intapp Stock
Founded back in 2000, Silicon Valley startup Intapp took in an undisclosed amount of funding, some of which was used to make a number of acquisitions over the years. The end result is a product offering consisting of two major components:
- DealCloud – deal and relationship management solution for financial services firms.
- OnePlace – a solution to manage all aspects of a professional services firm’s client and engagement lifecycle
Sounds a whole lot like customer relationship management (CRM), something that turned cloud CRM provider Salesforce.com into a $226 billion company. Intapp’s need to reinvent the wheel comes from the specialized needs of the highly regulated financial services industry that needs to accommodate an ever-changing list of requirements to remain compliant. Most firms have their own application Frankenstack that costs loads to maintain, let alone equip with the latest and greatest technologies – like artificial intelligence (AI).
AI and Low Code
Industry-specific AI algorithms are embedded throughout the entire Intapp platform for everything from improving pricing strategies to automatically capturing billable activities. There’s also reference made to “low code” which means companies can make changes without having to hire expensive developers. The company claims their use of AI creates “a significant competitive advantage,” and evidence of that can be seen in the number of industry leading firms that have adopted their solution.
It’s still early days though. Intapp estimates that if their top-100 clients were to fully adopt the platform such that it serves all of their users in all parts of their organizations, this would represent an additional $1 billion in run rate – the old “land and expand” strategy. Speaking of run rate, that sits at $201 million as of March 2021. In examining their revenue segments, it’s a bit more complicated than your normal software-as-a–service (SaaS) business. Here’s why.
Two Types of Recurring Revenues
Financial firms are often leery of putting their most valuable information in the cloud (this means hosted on another company’s servers). So, they’ll adopt the platform on their own servers – what’s referred to as “on premise.” Around 49% of annual recurring revenues (ARR) comes from “on premise” and the other half comes from the cloud. Clearly, there’s a lot more work involved when a client wants to adopt a solution on premise, and that’s where Intapp is able to bill their clients “professional services” which is pretty much what it says on the tin. Think of this as project-based work that only scales if you throw more bodies at it. Around 13% of Intapp’s revenues are non-recurring.
Note that the above reflects actual revenue, not ARR, which is confusing. Just remember that if ARR is growing, revenues are growing too.
Total Addressable Market
We often use the term “total addressable market” or TAM, and there’s actually a bit more to it. TAM is the ideal market share that could be captured in a perfect world. Inside of TAM you then have serviceable available market (SAM) and serviceable obtainable market (SOM), two segments that are best described by the below graphic.
For all practical purposes, we don’t need to dig any deeper than SAM. For example, your product may only be available in one language, which means a good chunk of your TAM is off limits until that changes. Or, you could be purposefully targeting a subset of client types from the TAM which is what Intapp is doing. The company believes their SAM to be approximately $9.6 billion, of which over $6.5 billion would be attributable to large firms with over 500 employees. Since they’re targeting a concentrated number of firms, investors will need to pay close attention to a key metric which most SaaS companies track – ARR expansion.
The above chart considers each year’s worth of new clients to be a cohort. For example, the clients that came on board in 2014, and are still on boar today, are now paying 3.3X as much in annual recurring revenues as they were when they first signed up.
To Buy or Not to Buy
Every investor needs to make buy decisions based on what they’re already holding. We’re currently long DocuSign at the moment, and couldn’t find a bad thing to say about the company. We don’t feel the need to add another fintech stock to our portfolio. In comparing the two companies, DocuSign is a business that’s much easier to understand. They also have a lot more clients, 988,000, compared to Intapp’s 1,600. Fewer clients means more consolidated revenue streams which can lead to greater risk if a key client cancels. Around 95% of DocuSign’s revenues come from subscriptions compared to 87% for Intapp. DocuSign targets all industries of all sizes while Intapp is focused on large firms in finance and legal. There’s nothing wrong with Intapp, we just find DocuSign to be the more compelling one of the two – the one with the least amount of risk.
The abbreviation “fintech” stands for financial technology, and it’s clearly what’s on offer from Intapp – a fintech platform built for the unique needs of financial services companies. For the platform to succeed, it’s not enough to say that industry leaders are using it. Intapp needs to become pervasively used throughout all users of these organizations in order to become the success story that it aspires to be.
Should the IPO proceed as planned, shares of Intapp will trade under the ticker INTA.
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