Why is TeamViewer’s Stock Price Falling?
Investing can mess with your head. Studies show that the pain of losing is psychologically twice as powerful as the pleasure of gaining. This is referred to as loss aversion, and it wreaks havoc when managing a portfolio.
If a stock you’re holding drops -30%, here’s how to make some of that pain go away. Put as much capital into the stock as your original purchase, and the loss decreases to -15%. While we can’t explain why, as investors, we all know that this now “feels better.” When a stock keeps falling and falling, there’s a temptation to keep buying and buying. That’s not a bad thing, but it feels bad, especially if the stock keeps sliding slowly over time in a dramatic fashion. And that’s precisely what’s been happening with TeamViewer AG (TMV.DE).
The Slow Slide of TeamViewer Stock Price
People always ask Google “why is stock X falling,” but never “why is stock X rising.” That’s loss aversion on display, and we’re not immune to it. We’ve asked ourselves “why is TeamViewer stock price falling?” a number of times, and so have our subscribers. Whenever a stock starts hitting the skids, here’s what we like to do.
- Assess position damage and establish plan of action – keep buying or wait?
- Revisit original thesis and key metrics
- Evaluate recent news in depth
- Go get high
Let’s start by looking at the damage. Right now, we’re down -36% on our TeamViewer holding with one position size worth of capital invested (roughly 3.03%). We determine a position size by first calculating “1 / X” where X is the number of constituents in our portfolio.
- 1 / 33 = 3.03%
Then, we multiply 3.03% times the total value of our portfolio. That dollar value is almost exactly how much money we’ve invested in TeamViewer. We’ve now accomplished our goal of establishing a position in the company and don’t see the need to overweight the position. Now, let’s restate our original thesis and look at how key metrics have changed over the past year.
Original Thesis & Key Metrics
We first wrote about TeamViewer nearly a year ago in a piece titled TeamViewer – A German Internet of Things Stock. In that piece, we talked about how remote connectivity would play a key part in the growth of IoT. Similar to PTC, TeamViewer also combines IoT with an augmented reality offering that’s been formed through a number of acquisitions. Here’s a look at how three key metrics have changed since the last time we looked at TeamViewer.
- Total number of subscribers
Q3 2020 – (567,000)
Q3 2021 – (628,000)
Net retention rate (NRR)
Q3 2020 – (104%)
Q3 2021 – (Between 96% and 99%)
- Enterprise Customers (Subscribers with Annual Contract Value above €10k)
Q3 2020 – (1,658)
Q3 2021 – (????)
Regarding the first metric, TeamViewer discussed this in their recent earnings call stating that their ability to convert free subscribers to paid is weakening, so they’ll need to focus more on upselling existing clients. That’s where the second metric comes into play. As a consequence of The Rona, TeamViewer’s net retention fell to 88% in Q2-2021 as customers canceled – something that doesn’t bode well for subscription stickiness. That’s why enterprise customers become so important as management believes that these higher spending clients will be easier to retain and up-sell. For whatever reason, that “enterprise customers” metric was omitted from the Q3 Earnings Presentation, which is a good segue into our next subject.
Examining Recent News
Reading the Q3-2021 initial earnings call transcript, we get the feeling the emperor was just told he’s wearing no clothes. The management team falls on the sword for a reason. All the signs were there that targets wouldn’t be met, but they kept assuring analysts they were on track. Heads are certain to be flying internally, and a consistent investor deck was probably the least of their concerns. But losing the faith of investors is a problem, especially when you start omitting information you were presenting before.
When TeamViewer’s stock started sliding, it was largely the result of revised guidance. Here’s what we said the day the slide began.
We like to focus on annual numbers, and TeamViewer revised their annual revenue guidance for 2021 downwards by 5.7% – from $607 million to $572 million (all numbers provided in USD). If TeamViewer hits that $572 guidance number for 2021, that would mean year-over-year growth of 7.6% vs. the 14% growth that was expected based on their previous guidance. We’ll be adding shares of TeamViewer in the days to come since our thesis hasn’t changed. Given the morbid earnings call we just listened to, we would expect TeamViewer management has taken the most pessimistic view of the future as possible, and the market reacted accordingly.
We’re making a very important assumption here which is that TeamViewer’s management team presented everyone with the worst possible picture. (More on this in a bit.) One thing they mentioned a lot in a positive context during the call was enterprise growth.
Update 11/8/2021 – We need to eat some crow here. When writing this piece, we failed to recognize that TeamViewer reports earnings differently to how they do things in the States. There’s a preliminary announcement, then the actual announcement. We failed to recognize this, and then – like a bunch of baboons – chastised the investor relations team when we were the ones in the wrong. Someone did reach out to point this out but hundreds of people already read it and thought to themselves, what a bunch of clowns. This is where we rely on the pratfall effect and hope that falling on the sword here actually places us in a more favorable light with our audience.
The Importance of Enterprise Growth
A key metric missing from the Q3-2021 earnings deck was “enterprise customers” which they classify as “customers with invoices billings across all products and services of at least 10,000 euros within the last 12 months.” This segment represents clients they’re able to cross-sell products to, or clients that are increasing usage of existing products, both of which increase subscription revenues. As of Q2-2021, TeamViewer had 2,252 enterprise customers, just over half of which spend less than 50,000 euros a year which is a very small number.
For most companies, having a 50,000 euro per year expenditure barely flies under the radar of the CFO. It certainly won’t get enterprise salespeople in front of key decision makers. Still, having the size of your client spend increasing over time is a good thing. In the latest call, TeamViewer described the enterprise segment as presently comprising “nearly 50% or 40% of billings contribution.” Throughout the call, they talk favorably about the enterprise segment, aside from this bombshell they dropped.
I think it’s wise to have a wider range. Because, honestly, I can’t tell you how the enterprise conversion will work and how that will then contribute to the overall growth.Oliver Steil, CEO of TeamViewer
(Facepalm.) If the CEO lacks confidence in whether or not an enterprise strategy will spur growth, why should investors view this any differently? And if they’re not sure that increasing enterprise customers would result in growth, then why did they give Manchester United over 270 million euros for a jersey logo this year followed by a Mercedes F1 sponsorship which costs who knows how much? Concerns about this spending, along with the handsome compensation of the management team, have previously been raised. Add to that, an earnings call that couldn’t have painted a worse picture of the company’s future prospects, and it’s no surprise the share price imploded. Since the beginning of this year, shares of TeamViewer have lost -71% compared to a Nasdaq return of +22% over the same time frame.
Over the past several weeks, TeamViewer’s share price has been slowly sliding downwards on heavy volume with no end in sight. This has prompted many to wonder just how low shares of TeamViewer can go.
How Low Can TeamViewer Go?
When stocks we’re holding fall, we add shares over time until a full position has been reached. That’s where we’re at with TeamViewer. The company’s plan to acquire their way into augmented reality isn’t seeing the results they expect – yet. Internally, some straw broke the camel’s back, and management decided to commit seppuku on the earnings call while investors reacted accordingly. We’re all left wondering just how low this stock can go. With a simple valuation ratio of just 5.2, here’s how TeamViewer compares to a handful of SaaS stocks taken from The Nanalyze Tech Stock Catalog (company names link to our research).
|Artificial Intelligence||Sumo Logic||9|
In a recent piece, we talked about how private equity investors often step in when share prices of quality companies become depressed. Unfortunately, that’s already happened for TeamViewer. Permira, the same firm that bought Blue Prism, bought TeamViewer back in 2014. After taking the company public in 2019, Permira sold off a large chunk of their holding though they’re still a major shareholder at the moment. Hopefully, they stepped in to help TeamViewer with damage control.
As TeamViewer shares continue to slide, some subscribers have understandably raised concerns, the below being a particularly well-articulated one.
What do the companies’ numbers show you currently that offers you the comfort in maintaining a position?Credit: Nanalyze Premium subscriber
Well, now that management doesn’t know whether enterprise growth will result in overall growth, we’d have to say nothing, though we do hold on to one glimmer of hope.
A Glimmer of Hope
Aside from the comment about lacking confidence in their focus on enterprise to begin with, the management team spoke favorably about the enterprise segment throughout the call stating that:
I think, also, at the end of Q2, we said that a lot in this year depends on effectively four months of the year, September, as the last month of Q3, as an important enterprise month, and then also important, Q4, with a large renewal base where we see good net retention rate development now. But also, Q4 is the main enterprise quarter and enterprise is a growing part of the business.Oliver Steil, CEO of TeamViewer
If this were a business school case study, we could think of one way a competent management team could make lemons out of lemonade.
Prior to falling on the sword, TeamViewer’s management team should have had a “come to Jesus” with key decision makers to make sure all the dead bodies were found. If you’re going to the market with bad news, you always make sure to get it all out on the table – every last bit of potential downside for the year – and then be extremely pessimistic about the future. TeamViewer’s management team excelled at this part. Prior to revising guidance, meet with the sales team to make sure they’re entirely certain that the top range of 2021 guidance will be met as if their jobs depended on it. That will help address the investor confidence problem.
At a minimum, the most important thing TeamViewer needs to do now is hit their revised guidance, if not exceed it. They have a highly compensated management team on board to address problems just like this one. There’s nothing wrong with using the pratfall effect to your advantage, just don’t overdo it. Trying to come up with a price target or fair value is pointless if Wall Street analysts turn their interest in the company into short interest.
Our TeamViewer position represents about 3.03% of the capital we’ve committed to our disruptive tech stock portfolio. We bought when others were fearful, and now we’re fearful too, but we don’t see any reason to exit our position at rock-bottom prices.
It may take a while for TeamViewer shares to recover, but we’re going to wait and watch, hoping that the company’s
highly-compensated extremely talented management team will get the ship back on course and make investors realize they overreacted. Lads and lasses, it’s time to earn your money, and perhaps make the investor deck consistent between quarters to make your investors’ lives easier.
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