Peer comparison
Blackbaud’s peers include Intuit Inc. (NASDAQ:INTU) and Adobe Systems Incorporated (NASDAQ:ADBE).
Similar to Blackbaud, Intuit benefits from high switching costs, customers want to avoid the risk of data loss in the process of transitioning to a new accounting or tax software program. Intuit Inc. (NASDAQ:INTU) achieved a good set of results for the third quarter of fiscal 2013, with revenue and operating income up by 13% and 12% respectively. It plans to meet its double digit revenue growth targets through improvement in conversion rates. Intuit’s current conversion rates range from 2%-14% and a doubling of current conversion rates will add an estimated $1 billion to its top line.
The key investment risk for Intuit is its revenue concentration with respect to products and customer segments. Intuit derives a significant portion of revenues from its flagship QuickBooks and TurboTax products, and its small and medium-sized business customers are typically perceived as more vulnerable in an economic downturn.
Adobe Systems Incorporated (NASDAQ:ADBE) is one of the largest software companies globally, with flagship products as the Photoshop photo editing tool and the PDF & Flash platforms. Its revenues for the second quarter of fiscal 2013 of $1.011 billion were well within its prior guidance of between $975 million and $1.025 billion.
The highlight of the quarter was the progress of its transition of Adobe’s current installed base from a perpetual license model to a subscription model with Creative Cloud. Its Creative Cloud subscriptions reached 700,000 in this most recent quarter, an increase of 221,000 over the prior quarter. Adobe’s near-term share price upside is largely dependent on its success in overcoming customers’ resistance in moving over to a subscription model, which will increase the proportion of recurring revenues for the company.
Conclusion
The non-profit industry opportunity is estimated at $16.5 billion and Blackbaud, Inc. (NASDAQ:BLKB) management claims to have a dollar penetration rate below 3%. This illustrates the potential for growth in Blackbaud’s business, which is duly reflected in its valuations with a 23.7 forward P/E and 1.9 PEG. I will advise investors to wait for a better entry price in the event of a pull-back in the share price.
The article Making Profits From Non-Profits With This Stock originally appeared on Fool.com and is written by Mark Lin.
Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Adobe Systems, Blackbaud, and Intuit. The Motley Fool owns shares of Intuit. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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