William Blair & Company initiated research coverage of Demandware, Inc. (DWRE $28.46) with an Outperform rating and Aggressive Growth company profile. Demandware is a software-as-a-service (SaaS) provider of e-commerce solutions that enable retailers and branded consumer product manufacturers to design, customize, and manage their Web storefronts.
Analyst Laura Lederman estimated the company would generate revenue of $70.2 million in 2012 and $96.3 million in 2013, which she views as a conservative forecast.
"Demandware's growth has far outpaced the overall e-commerce market," Lederman said. "Its subscription revenue increased 64% in 2011 (all organic), and we conservatively forecast it to increase at a compound annual rate of 36% over the next two years. This rapid growth is driven by an increasing preference for SaaS e-commerce solutions, which provide multiple benefits over on-premise offerings, including faster implementations, fewer up-front costs, automatic functionality updates, and almost no infrastructure. Given these and other benefits, Demandware is often preferred over on-premise software sold by vendors such as IBM and Oracle. Also driving growth is the existing base of 101 customers, who have been increasing their online businesses at rates significantly faster than the broader market (we estimate nearly triple). Demandware directly benefits from this, as it captures a percentage of the gross merchandise value (GMV) that is sold on its platform."
Lederman added, "With more than $160 billion in U.S. e-commerce spending in 2011, and a global market that is more than twice that size, e-commerce is a large market opportunity that provides Demandware with significant runway, in our view. We peg the total available market for the company's e-commerce solution at between $3.4 billion and $6.7 billion today, with Demandware having just 1% penetration. We believe that the opportunity for considerable growth in e-commerce remains, driven by an increasing mix shift to online and, to a lesser extent, continued growth in the overall retail market. We also see an opportunity for Demandware to significantly increase its penetration, and as the overall market expands, so too should Demandware as more companies look to software providers to help design, manage, and host their online storefronts."
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