Catching Up With TeamViewer Stock
Table of contents
Social media is largely a collection of loose point-to-point connections. Before social networks came on the scene, savvy tech individuals would connect with one another using phone lines and modems. It was common for kids to convince their parents to get another phone line so that people could actually call the house. This allowed for individuals to begin connecting to one another on platforms like Yahoo Chat and finally on the social networks we have today.
TeamViewer provides connectivity software that allows people inside and outside of organizations to connect with each other in a secure manner. Sometimes these connections aren’t secured. East Asian scammers often try to infiltrate the computers of unsuspecting elderly people by using TeamViewer to enable connections. Security is an important component of the platform which is where the enterprise use cases come into play. (IoT and AR are also themes found within their business model.)
It was just over a year ago when we asked, Why is TeamViewer’s Stock Price Falling? and discussed how the management team fell on the sword and all but destroyed the share price. Today, the company appears on track to hit guidance and claims they’re exhibiting some resilience in the face of today’s (wait for it) macroeconomic headwinds.
With nine solid months in the books we are on track to reach our full year guidance despite macroeconomic headwinds. TeamViewer continues to display a strong degree of resilience in this environment as customers benefit from efficiency gains with our solutions.
Credit: TeamViewer
Catching up With TeamViewer Stock
Our last look at TeamViewer stock noted the increasing importance of enterprise customers because management believes these higher-spending clients will be easier to retain and up-sell. At the same time, small clients (those spending less than $500 a year, for example) become less of a priority, especially given TeamViewer’s ability to convert free subscribers to paid is weakening. So, today’s analysis is going to focus on enterprise customer growth while considering the relevance of “bookings” when examining metrics. Let’s start by discussing what bookings represent for TeamViewer.
Revenues vs. Bookings
Enterprise software sales involves a BSD salesperson working their way into the office of decision makers and selling them a software solution. Product delivery takes place after a contract is signed which is a lengthy process involving numerous high-level signatures and vetting by legal teams. Once a contract is signed, there’s a duration associated with the sale. Our piece on Alteryx talked about the trend for Software-as-a–Service (SaaS) companies to decrease contract duration – from three years to one year, for example.
Multi-year contracts often complicate revenue reporting for obvious reasons. If the contract represents a three-year period, then it makes sense to recognize a third of the contract value in each of the three years, though the percentage allocated to each can vary. If “bookings” represent total contract value signed, then revenues will be disconnected in the case of multi-year contracts. Below you can see the example of how a $12 million three-year contract is accounted for:
- Year 1: Bookings ($12 million) – Revenues ($4 million)
- Year 2: Bookings ($0) – Revenues ($4 million)
- Year 3: Bookings ($0) – Revenues ($4 million)
An increasing disconnect between bookings and revenues is what’s happening at TeamViewer.
Here at Nanalyze, we’re very particular about only recognizing revenues. “Bookings” can be defined in various ways by various companies, and we’ve seen SPACs abuse this. For example, they may claim to have $1 billion in bookings for a given year, yet only recognize $50 million in revenues. Intuitively that doesn’t make any sense. Examine the fine print and you’ll see that bookings don’t actually reflect signed contracts. In the case of TeamViewer, bookings do reflect signed contracts, which is why they’re particularly relevant.
TeamViewer talks about how their enterprise deals will lean towards three-year contracts which means we’ll see an increasing disconnect between bookings and revenues. In fact, they specifically tell us to focus more on revenues going forward (SMB stands for small and midsize businesses).
With the ongoing transition from SMB to Enterprise, more and more multi-year deals are being signed. As a result, revenue is becoming increasingly relevant to measure actual business momentum.
Credit: TeamViewer
This seems counterintuitive. Wouldn’t bookings be a better leading indicator of business momentum? The difference between revenues and bookings represents revenues to be captured down the road rather than what’s being realized now. Nonetheless, we agree that focus should always be on revenues, so perhaps their new Head of Investor Relations that came on in September can revamp the earnings decks so that the focus is more on revenues and less on bookings. TeamViewer’s decks should be made to more resemble the high-growth SaaS firm they’re aspiring to be.
Enterprise Growth
Given the company’s aspirations to grow the enterprise segment, that’s where we ought to focus. Around 20% of total revenues now come from enterprise clients, and that ratio should increase over time. TeamViewer’s business lends itself quite well to traditional SaaS metrics such as net retention rate (NRR) which shows how much additional money existing enterprise customers are spending over time. Ideally, that number should be around 120% which is about average for SaaS companies.
With one quarter left to go, TeamViewer expects to hit their guidance range for 2022 – between 565 to 580 million euros (the euro is nearly equal in value to the dollar so the Americans can just pretend we’re talking about greenbacks). This represents growth of 13% to 16% which isn’t half bad (2021 year-over-year growth was around 10%). Below you can see the usual annual contract value (ACV) buckets which show the growth of enterprise accounts over the last trailing twelve months (21% represented upselling SMB accounts to enterprise accounts).
Bigger contracts mean salespeople will be in front of key decision-makers more which increases the likelihood of effective cross-selling and upselling.
Survivability
TeamViewer generates cash flow from their operations which means they don’t have to worry about raising money to survive in today’s bear market. The below “bridge” diagram does a good job of showing how they put their cash to work throughout this year.
Paying down debt is always a good idea as it reduces interest payments, though the company still has outstanding debt of 635 million euros with around a third being exposed to variable interest rates. Buying back shares at depressed prices adds value to shareholders, though growth companies should find better uses for their cash internally.
General Comments
Over the year, the company hired a new CFO and CCO (Chief Commercial Officer) while the CEO had his contract extended until 2024. (Given that the CEO is also the Chairman of the Board, that doesn’t come as much of a surprise.) This means two-thirds of the executive board started with the company this year.
This past spring, TeamViewer unveiled their “c-a-r-e” program with a focus on sustainability and goals such as increasing “representation of women in management across all levels to at least 33% by the end of 2024.” The only thing we c-a-r-e about is that the most competent individuals are hired for the job. Hopefully, Mr. Turner shelves these distractions. Wasting time trying to appease the ESG gestapo and their opaque black box of marching orders is a waste of time and resources.
This month’s earnings call saw some great questions from analysts including some around the disconnect between billings and revenues. TeamViewer’s decision not to renew their contract with Manchester United was an excellent one. Aside from some prime box seats, just what benefits could the company expect to receive from all that spend? TeamViewer claims that more than 20% of the 1.1 billion Man U fans are business decision-makers, but brand awareness shouldn’t have to come from a footy match. Questions were also raised around the relevance of moving SMB revenues to Enterprise revenues. The advantage here would be the increase in contract size that provides more opportunities to upsell and the longer contracts that lock in customer spending. Provided total revenues are increasing over time, we can be sure the business is growing.
Like all firms out there, TeamViewer faces macroeconomic headwinds that show no sign of letting up. If, as they say, their solution can help firms save money, then now is the time to shine by using that as a selling point to bring on new customers and upsell existing customers.
Conclusion
Going forward, we’ll want to see continued growth in the enterprise segment as TeamViewer looks to transition their business towards looking like a more typical SaaS firm. Profitability means they won’t have to dilute shareholders or issue more debt, and the share buyback program seems like money well spent given the languishing share price. They’ll just need to manage debt and focus on execution. The addition of two new executive team members will hopefully invigorate the firm so they can capture more of the $20 billion total addressable market opportunity that’s only expanding over time.
Share
They are profitable (P/E=30) and they keep increasing revenues but revenue growth is slowing: last year it was only 10%, prev year was 17%. In 2022 it might be 12-15%. So there is nothing exciting about revenue growth, but that doesn’t justify its share price falling over 70% since the end od 2020 ..
In one SA article I see: “the company operates a useful utility that has a good user base, but one that seems easily replicable. Companies such as Zoom Communications (ZM), Microsoft (MSFT), and Cisco (CSCO), all want their piece of the pie in one way or another, and it is questionable for how long can TMV keep up as an industry leader”.
They’ve broken down their offering into three segments and want to believe that different competitors are attacking different segments while they’re the only overarching solution. The truth is probably somewhere in between. Don’t disagree with that SA comment.