Paylocity Holding Corporation: Initiation of Research Coverage

Tuesday, April 15, 2014

William Blair & Company initiated research coverage of Paylocity Holding Corporation (PCTY $18.80) with an Outperform rating and Aggressive Growth company profile. Paylocity provides SaaS payroll and HR solutions to the middle market, targeting companies with 20 to 1,000 employees.

Analysts Justin Furby and Bhavan Suri estimated the company would generate revenue of $102 million in fiscal 2014 (ending in June) and $126 million in fiscal 2015.

“Paylocity provides companies with an appealing alternative to legacy payroll service providers,” Furby said, “with its intuitive SaaS payroll and HR applications that were organically built for the middle market and share a common database. In addition, its dedicated customer support model offers clients a superior service experience, which has helped drive dollar retention rates in excess of 92% over each of the last three fiscal years. Over the last several years, more customers have been purchasing software in suites, particularly in the middle market, where companies are looking to consolidate their IT relationships. Paylocity is well positioned to benefit from this trend; our customer conversations indicate it has superior HCM technology that integrates better than its two largest competitors, ADP and Paychex. Furthermore, the company’s unique distributor model of brokers and advisors that refer business and help influence deals—a network of nearly 1,000 partners—better enables Paylocity to reach the 560,000-plus companies in its target market.”

Furby added, “The U.S. middle-market opportunity can support several more years of 30%-plus recurring revenue growth for Paylocity, in our view. At its current average price, we size the addressable market at $5 billion, and if it were to sell all of its products, it is an even larger $8 billion opportunity. Using either approach, Paylocity is in the early innings of penetrating its market. Over the longer term, we believe the company has the market opportunity and competitive positioning to be a $1 billion-plus revenue business.”

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