NICE Stock: Contact Centers as a Service

Just prior to the dot bomb era, evidence was emerging that customer service functions were being offshored. What started with John in Mumbai ended up with Rosie in Manila. Cheaper office space and labor, a greater propensity to please, and a greater degree of “accent neutralization” were all factors in the migration of customer call centers from India to the Philippines. Nowadays, it’s all about optimizing call centers with technology to offer a better customer experience with a lower headcount, something commonly referred to as Contact Centers as a Service or CCaaS.

Cost savings, compared with on-premises contact center software. Full CCaaS on average is $1,356 per agent, per year, as opposed to $2,104 for on premises.

Credit: TechTarget

Contact Centers as a Service

Companies of all sizes need a contact center to connect with their customers. Here at Nanalyze, we use a few tools – HelpDesk and LiveChat – that help us triage incoming emails and chat live with our customers, at least whenever we’re sober. The number of channels you can use to communicate with customers has exploded – email, messaging apps, phone, chat, text, and the list goes on. It’s a challenge for a business of any size to manage all this communication in an efficient and competent manner. That’s where an “as-a-service” offering makes sense. Gartner estimates that more than half of all customer service centers – or contact centers as they’re now called – deployed in 2020 will utilize cloud-based offerings.

We’re constantly talking about how much we like software as a service (SaaS) business models, and so does the market. Investors assign a premium to SaaS companies because their revenue streams are diversified, consistent, and easy to monitor using standard metrics such as annual recurring revenues or retention rates. SaaS businesses often realize high margins over time because once you’ve built your offering, adding additional customers doesn’t cost much. From the customer’s perspective, they get access to a pay-as-you-go best-of-breed solution, regardless of their size. The service can easily respond to fluctuations in demand, something that’s inherent to any customer service helpdesk.

When it comes to leaders in CCaaS, a few names stand out according to the MBAs over at Gartner whose job it is to figure this stuff out.

While multi-channel support is a given, the above companies derive at least 50% of their revenues from voice capabilities – in other words, good old-fashioned call centers. At the front of the pack is an Israeli firm called NICE (NICE) which boasts 25,000 customers on their CCaaS platform.

About NICE Stock

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Founded way back in 1986, Israel’s own NICE has been publicly traded since their IPO in 1991 and has acquired 16 different companies over the years. (This $16 billion company is dual listed on the Tel Aviv stock exchange and as an ADR on NASDAQ.) Over the past six years, they’ve pivoted from a “product and projects” company that operated primarily on premise to an enterprise software company that focuses on recurring revenues.

Catching up with the times – Credit: NICE

In looking at revenue growth by segment, NICE’s cloud revenues have driven the majority of their growth over the past five years.

Credit: Nanalyze

The end result is some beautifully consistent revenue growth, even when viewed quarterly.

What pandemic? Credit: Yahoo Finance

Whenever a company reinvents itself while simultaneously making bolt-on acquisitions, the end result is often an investor deck that’s painfully difficult to read because it’s been force-fed too much stuff by too many people. That’s where we ended up with NICE because their latest 20-F (the 10-K equivalent for a foreign company) is an absolute mess of information, albeit one that hides some real gems. For example, they’re using AI algorithms to dynamically assign a call to the most appropriate agent. (It’s similar to what Afiniti is doing and it’s remarkably effective.) Around 80% of NICE’s revenues are attributed to CCaaS, and the remainder to a category they refer to as “Financial Crime & Compliance.” Less than half their revenues come from cloud solutions and around 79% of total revenues are recurring.

One reason we believe SaaS business models are optimal is because once investors understand the basic metrics – annual recurring revenues, net retention rate, customer concentration, etc. – they can then evaluate any SaaS business easily. If a SaaS business doesn’t provide key SaaS metrics, it defeats the purpose. For example, we weren’t able to find any info on customer concentration risk in NICE’s 20-F filing, and the phrase “retention rate” was nowhere to be found.

NICE Competition

The CCaaS market has an attractive total addressable market (TAM) of between $20 and $30 billion, just depends on whose forecasts you want to believe. A growing opportunity means plenty of competitors will be eyeing up your space. Here’s a quick look at the two other CCaaS leaders listed in this year’s magical quadrant.


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Founded in 2011, San Francisco-based Talkdesk has taken in $267.5 million in disclosed funding and they’re not done yet. An article by The Information says they may be raising up to $210 million in Series D funding at a valuation of $10 billion. That’s not a unicorn, that’s a decacorn, and they’ll join 33 other startups on the CB Insights Unicorn List that are valued at $10 billion or more. Over 1,800 companies around the world, including IBM, Acxiom, trivago, and Fujitsu partner with Talkdesk to deliver a better customer experience. When a fast-growing company approaches a Series D/E, the next logical step is often to go public. Says Gartner, “Talkdesk is achieving some very strong customer growth, fueled by attractive pricing and strong commitment to the sales engagement process.”


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Founded in 1990, Genesys also hails from San Francisco and is privately held. The difference is that they were acquired by a private equity firm, Permira, in 2012 and raised $900 million in funding four years later. Some of that money was used to make at least 19 acquisitions since then, all of which have been rolled into “the global leader in cloud customer experience and contact center solutions” with customers across 100 countries. (Geographically diversified revenues are something NICE lacks with 82% of their 2020 revenues coming from the Americas.) Gartner notes a strong global presence for Genesys and “lower contract elasticity” which is actually a good thing for investors who prefer long duration, fixed contracts.

To Buy or Not to Buy

We first came across NICE when writing our piece on The “Best” Robotic Process Automation (RPA) Stocks. You could easily consider CCaaS in the same domain as RPA because both are about reducing headcount and streamlining operations through the use of technology. That said, we’re not enjoying the foreign filing documents from NICE which are difficult to navigate. The same can be said for their investor deck. We like the company’s revenue growth and new direction, just not enough to add it to our portfolio right now.


NICE admits to only having achieved their CCaaS prowess in the past seven years or so as they began modernizing their business model, moving to the cloud, and focusing on recurring revenues. While cloud growth is strong, they’re still in the process of transforming their business so that it can be measured using familiar SaaS metrics. We’re in no hurry to add new stocks to our portfolio, but we’ll be keeping an eye on the CCaaS space going forward.

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