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Conclusion On Apptio Inc. (NASDAQ:APTI) Stock and Clients

Apptio Inc. (NASDAQ:APTI) has cleverly founded the Technology Business Management Council - a non-profit organization that has more than 2,900 CIOs. This has led to them very quickly and cost effectively accessing their client base.

The Business

The company was started as a service that could help the Chief Information Officers (CIOs) of organizations manage the business of information technology (IT) more efficiently. With the company's SaaS cloud-based platform, Apptio offers cost transparency, IT planning and benchmarking, business insights, and bill of IT. Or put simply, Apptio software system “manages (automates) the work and operations of IT.” 


Source


Apptio’s Clients


Apptio’s main clients are large US companies, representing 73% of Apptio’s revenue. Apptio has over 360 corporate clients with an average subscription contract value of $400,000. Revenue is derived from both monthly subscription fees, and/or service fees. 



Revenue Growth

2016 revenue was $161 million, up 25% on 2015. Q3, 2017 revenue was $47 million (up 15% on Q3, 2016). 


Valuation

Apptio has a market cap of US710m and no debt. Due to no profits there is no current PE. Apptio currently trades on a 2018 EV/revenue multiple of 3x, which is well valued compared to software platform peers. Consensus analyst estimate price target is US$19.57, representing around 10% upside.


Conclusion

Apptio is already doing very well with 360 clients, 97% retention rate, and a high spend rate per corporation. This shows that large company’s see value in their IT management software platform. Competitors are virtually non-existent at this time, for their niche area, and Apptio will likely grow into the mid-sized corporate segment next.


Their valuation looks attractive at just 3x revenue, with profit expected in 2019. Given the total SaaS market potential is around $11.6 billion by 2019, and Apptio has around US$161 million, there is large potential upside for Apptio to grow organically. 
I rate the stock a strong speculative buy.