Is Intapp Stock a Better Buy than DocuSign Stock?
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Last month, we expressed some major concerns over DocuSign stock (DOCU). It wasn’t just the single-digit revenue growth that raised a red flag. Net revenue retention rates – the amount of money existing customers are spending – have dropped for eight quarters in a row with no end in sight. That’s reflected in the declining number of customers shelling out more than $300,000 on the DocuSign platform. We’ve been watching this slowdown in the business for more than a year, and we decided that if things worsen much more for this LegalTech company, we might move out of our position.
Most people don’t quit a job until they’ve scoped out a new one. Similarly, we want to look at our options for potentially replacing DocuSign in the Nanalyze Disruptive Tech Portfolio should we decide to drop it. A couple of years ago, we profiled another software-as-a–service (SaaS) stock that specializes in LegalTech automation right after it IPO’d (rather than merging with a blank-check company when that was still a thing, we might add). Intapp (INTA) caught the tail end of the pandemic-fueled bull market in June 2021 before riding its first bear in the rodeo known as the Nasdaq.
All About Intapp Stock
Today, Intapp is a $2.6 billion company with annualized revenues of $364 million, with a simple valuation ratio (market cap/annualized revenues) of just 7, well below our cut-off of 20. Revenue growth is in the double digits, the net revenue retention rate is on the upswing, and its cohort of high-dollar customers spending more than $100,000 is also on a nice trajectory. Let’s go on a second date with Intapp stock.
What Does Intapp Do?
Let’s get a little more intimate with the company this time around. As you might recall, Intapp provides an AI-powered customer relations management (CRM) platform that specializes in a handful of high-end industries: private capital, investment banking, legal, accounting, and consulting firms. This isn’t CRM for your typical mom-and-pop chain of bargain trinkets, but software to manage the dark web of relationships, backdoor deals, and legal entanglements for the apex predators of the financial world.
Until recently, Intapp had two branded platforms for its clients. DealCloud supports deal and relationship management for financial services firms and deal professionals, while OnePlace manages “all aspects of a professional services firm’s client and engagement lifecycle” focused on legal customers.
Earlier this year, the company decided to consolidate under the DealCloud brand, which presumably comes with some synergies and long-term cost savings. For example, Microsoft Azure hosts DealCloud while OnePlace has been hosted on Amazon Web Services. Legacy customers on the latter will be migrated to Microsoft Azure, reflecting Intapp’s growing partnership with Microsoft (more on that later).
An M&A Platform Built Through M&A
Interestingly, Intapp previously acquired both brands, with the OnePlace acquisition coming a year after the DealCloud deal in 2019. In fact, over the last decade, Intapp has bolted on nine different companies, from providers of risk management software to invoice automation. Founded in 2000, Intapp developed its own technologies organically around what it calls “relationship intelligence” and “applied AI” in collaboration with its clients, often based on their in-house designs.
Its most recent acquisition, Paragon Data Labs, came in May of this year. It adds another layer of compliance capability to the platform, which originally focused on law firms, with a whole set of functions around ethical walls, information barriers, conflicts of interest, terms of business, and a bunch of other legalese legalities. The Paragon Data Labs deal augments that with a set of employee compliance and risk capabilities like personal trading compliance for the financial services sector such as private capital and investment banking firms.
Who Does Intapp Serve?
That begs the questions: Who are Intapp’s customers and how do they use the platform? According to the company, its client base “represents many of the world’s premier professional and financial services firms, including 96 of the Am Law 100 law firms, 7 of the Top 8 accounting firms, and over 1,250 private capital and investment banking firms.” In total, the company has more than 2,500 customers, with about 25% representing contracts with annual recurring revenue (ARR) of $100,000 or more. More than 40 of those customers spend at least $1 million per year.
Let’s examine a couple of case studies to understand how customers actually benefit from using the platform.
- Ward and Smith, P.A., a general practice firm of 90 attorneys, leveraged the low-code capabilities of Intapp Integration to merge and automate data. For example, a legal team might need to handle as many as 200,000 files for one matter. A process that took days can now be done in 20 minutes.
- Riverside Company, a global investment firm that invests in small and midsized companies, adopted the DealCloud platform to streamline the disparate applications, workflows, compliance requirements, enterprise reporting, and CRM platform it had used to run the business. The result: Deal-metrics reports could now be completed in minutes rather than hours.
How Does Intapp Make Money?
Most customers access the Intapp platform and its various solutions through a SaaS cloud-based subscription, though a smaller subset still pay for an on-premise subscription license. Three-quarters of the way through its current fiscal year, total recurring revenues from these two buckets of money account for 86% of revenues.
A key metric for the company is ARR, which represents the annualized recurring value of all active SaaS and on-premise subscription contracts. As of March 31, 2023, total ARR was about $315 million, a 24% year-over-year increase. Intapp is particularly focused on Cloud ARR, as it shifts away from on-premise software licenses to a purer SaaS model. The most recent Cloud ARR was about $206 million, a 40% year-over-year increase. The percentage of Cloud ARR to total ARR is steadily increasing over time.
The company is also doing a good job of upselling solutions across its platforms, with a 12-month trailing net revenue retention rate of between 113% and 117%. For example, one law firm that appears in the top 25 in the United States by revenue recently migrated its core product to the cloud and then added Intapp’s suite of risk and compliance solutions. A number of customers have also opted in for the company’s new automated invoicing software, which it acquired from a little Pennsylvania startup called Billstream.
Should We Buy Intapp Stock?
Intapp stock appears to be a strong contender to replace DocuSign, but we do have some concerns in terms of the company’s upside. The market seems relatively niche. However, Intapp claims that just within its top 100 clients, there’s $1 billion of ARR that it can capture. The company projects an immediate total addressable market (TAM) of $10 billion, with up to $24 billion as its platform gains breadth.
Management insists that its customer base – especially private capital firms that pay Intapp using the mad money from their management fees – is pretty recession proof and reliable. Ditto for law, accounting, and consulting firms. Even investment banks, which have been a bit rocky since the Silicon Valley Bank et al meltdown, are stable.
These firms do well, generally speaking, in good times and bad. They’re not immune to the economic cycle, but they definitely are a better place to be compared to many others. … I think if you look at their revenues and profitability, generally, these are some of the most successful businesses on the planet. And as well as we’re doing, we’re still a relatively small spend compared to what they’re looking at overall. That’s a great opportunity for us to grow inside their budget, but we’re getting good uptake.
Steve Robertson, Intapp chief financial officer
The company has tied its horse to the Microsoft wagon by moving its whole platform to Azure, which is about half the size of AWS in terms of revenue but is growing. The partnership goes beyond simple cloud hosting services into other types of technology integrations and even co-marketing. Of course, analysts are already asking about how Intapp will adopt ChatGPT.
We’re actually very excited that Microsoft ended up with that technology, because we think this end market that we serve is one of the markets that’s particularly high potential for the application of ChatGPT and large language model type technology. So nothing to announce today, but a lot of work going on to what we’re going to be able to do to take advantage of that to the Microsoft partnership.
John Hall, Intapp chairman and CEO
There is a lot to like about Intapp stock but we’re not ready to pull the trigger yet. One thing we want to watch is the net revenue retention rate. Can the company sustainably upsell solutions to its relatively small pool of clientele? Especially without having to acquire a new company each time? After all, it has already spent more than $68 million on R&D through the first nine months of its fiscal year. Presumably, all of those software engineers are working on something.
Conclusion
Intapp stock is an intriguing replacement for DocuSign. Key metrics like revenues and customer spend are trending up. The company is moving to a solid SaaS model, though if we recalculate the simple valuation ratio based on just cloud ARR (since that’s where we believe the growth lies), then the number creeps up to 13. Still, we’re happy to pay a richer valuation if there’s lots of growth ahead. (Compare that to DocuSign’s valuation of just four.) Premium subscribers will be the first to know if we make any moves on Intapp stock.
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