ChannelAdvisor Corporation: Initiation of Research Coverage

Thursday, February 27, 2014

William Blair & Company initiated research coverage of ChannelAdvisor Corporation (ECOM $41.90) with an Outperform rating and Aggressive Growth company profile.

ChannelAdvisor is a SaaS provider of solutions that allow retailers and manufacturers to optimize their e-commerce business across numerous channels. Analyst Justin Furby estimated the company would generate revenue of $85.1 million in 2014 and $108.5 million in 2015.

“ChannelAdvisor’s SaaS offering provides customers with a single interface to manage the various channels of the e-commerce market,” Furby said. “The e-commerce market is becoming increasingly complex, with new channels emerging both domestically and abroad. These channels provide access to large, captive consumer bases, but also introduce new challenges because each has unique rules and selling requirements that change frequently. ChannelAdvisor invests roughly one-third of its R&D dollars to stay current on the existing channels and has developed deep relationships with e-commerce juggernauts Amazon and eBay; it often receives access to upcoming technology changes before they occur—access that is nearly impossible for retailers to have if they go it alone. As it has scaled its business, other channels have also proactively engaged with ChannelAdvisor to develop integrations between products. These types of relationships are difficult to replicate and serve as a competitive differentiator.”

Furby continued, “ChannelAdvisor directly benefits from the meaningful growth of the global business-to-consumer e-commerce market; it captures a percentage, typically 1%-2%, of its customers’ online gross merchandise value and its market opportunity expands alongside the overall e-commerce market. With roughly 110,000 companies it can target globally, the company is just 2% penetrated, and this excludes the evolving business-to-business market, which is at least twice the size. ChannelAdvisor has recently accelerated its sales-and-marketing investments, which in turn has raised market awareness and accelerated revenue growth. Core revenue increased 29% (all organic) in 2013, up from 2012’s 26% increase, and we believe the company can maintain or accelerate its revenue growth over the next couple of years or longer. Although the business is not profitable and losses are expected to increase in 2014 as management accelerates the pace of investments, we believe the company can achieve adjusted EBITDA margin above 20% as it matures.”

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Current Ratings Distribution (as of 01/31/14)

Coverage Universe
Outperform (Buy): 64%
Market Perform (Hold): 33%
Underperform (Sell): 1%

Inv. Banking Relationships*
Outperform (Buy): 12%
Market Perform (Hold): 2%
Underperform (Sell): 0%

* Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months.

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