QUMU CORP QUMU
February 22, 2021 - 11:57pm EST by
rhianik
2021 2022
Price: 9.29 EPS 0 0
Shares Out. (in M): 19 P/E 0 0
Market Cap (in $M): 177 P/FCF 0 0
Net Debt (in $M): -34 EBIT 0 0
TEV ($): 143 TEV/EBIT 0 0

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Description

QUMU is an enterprise delivery platform for video services.  Mrsox has written up QUMU twice!  First in 2016 QUMU December 2016 and most recently in April 2020 as an extremely well-timed pitch on the notion that QUMU shareholders would vote down the proposed merger combination with Synacor unless the offer was materially sweetened.  Mrsox correctly believed that QUMU was worth more on a standalone basis, given the impact of COVID on accelerating adoption for enterprise video services.

What investors did not anticipate at the time was the coming overhaul of QUMU's senior management team, involving replacing 5 of the 7 senior members of maangement, including: new CEO TJ Kennedy; a soon to be named Chief Revenue Officer; CMO Jen Dimas; Chief Commercial Officer Jason Karp; and Vice President Strategy Alex Kottoor.  Importantly, almost all senior management additions have extensive SaaS experience.  We believe QUMU has lacked the proper senior leadership and vision to execute upon the opportunity to grow in enterprise video and our discussions with employees who are still at the company suggest that the culture, energy and focus of the new team, led by Mr. Kennedy, are night and day compared with that under former CEO Vern Hanzlik’s leadership. 

In addition to the executive management team, roughly 25% of the organization has turned over to date, most notably in sales and marketing.  Management believes that its product is best in class and, with the proper investments in SaaS expertise in each of the executive team, sales, and marketing, QUMU should be able to quickly ramp revenue to much greater levels.

CEO TJ Kennedy believes the business can potentially scale from a 2020 revenue base of $29.1 million to $150 million of revenue within 5 years (a 39% CAGR.) Management intends for virtually all growth going forward to come from SaaS subscription revenue.  The stock currently trades at an EV/2021 estimated revenue multiple of 4x, based on management guidance of 20% growth to $35 million in 2021.  If QUMU simply holds this multiple, the stock could compound at this same 39% growth rate over time.  

What does QUMU do?

QUMU enables internal webcasting, virtual events, training & education videos and external communications.  Management believe that QUMU does the follow better than most competitors: 1) Scaling (delivery up to 100,000 users or more); 2) Security and compliance for delivery and storage;  3) network load management and streaming, via a self-service model; and 4) Content management.

QUMU use cases include:

  • Video on demand/ asynchronous video at scale
  • Analytics on video usage within the enterprise
  • Learning management videos / new employee onboarding
  • CEO town halls
  • Internal video communications
  • Intelligently searching archived video
  • Large scale video on demand

 

Industry Leader

QUMU gets favorable marks from industry specialists: 1) Aragon voted QUMU as an industry leader in enterprise video; 2) Gartner placed QUMU in the upper right quadrant the last time they rated enterprise video, and in its 2020 peer insights report QUMU received a 4.8 out of 5.0 rating; 3) Wainhouse Research rated QUMU Top Enterprise Streaming and Webcasting in 2020; and 4) the company also received awards for 2020 customer service department of the year and 2020 most innovative Teleworking Product.  

Key customers include: Corning, Dow, Toyota, CVS/Walgreens, Dell, USAA, Federal Reserve, Galaxo Smith Kline, Vodafone, KMPG, Liberty Mutual, among many others.

Competition

QUMU competes with Kaltura, Vbrick, Brightcove and others.  Enterprise video streaming and content management is a highly fragmented market estimated at $2.5 billion in 2020.  Kaltura and Brightcove are among the largest players in the industry Kaltura revenues are estimated at roughly $150 million, while Brightcove reported revenues totaled $197 million in 2020 on a reported growth rate of 7%.  Brightcove’s total enterprise value is roughly $900 million and is, thus, valued at 4.5x EV/Sales.   

Investment in sales and marketing team to drive revenue

Qumu recently completed a capital raise for the purpose of investing in sales and marketing to drive a significant acceleration in top-line growth.  The company will invest principally in targeting medium sized enterprises (5k to 50k employees) where the company is highly underrepresented.  QUMU will be focused in the following industry verticals where it has a significant presence:  finance, healthcare, manufacturing and services.

The investment is significant, with the salesforce expected to double from roughly 25 at year end 2020 to 50 by year end 2021.  

When CEO Kennedy arrived in July 2020, the organization was not ready to scale.  There were no repeatable sales processes in place.  Marketing needed to be fixed.  Customer success still had work to do.

With new SaaS sales and marketing leadership in place, the sales funnel has been torn apart and the lead gen engine has been rebuilt.  Playbooks have been created for the sales teams.  50% of the salesforce has already been turned over, and, when it's all said and done, 75% of the salesforce wil consist of employees  new to the company.

Qumu is starting with 5 net new sales PODS, with an average targeted quota of roughly $2 million..  Mid-market PODs will be targeted with annual revenue generation of $1.7 million and large market PODs will be tasked with a quota of roughly $2.2 million.  It is expected to take 5 to 7 months for salespeople to ramp to full quota carrying levels.  Some simple math suggests ARR generation of upwards of $10 million is conceivable this year, and management plans to keep scaling pods as necessary.   Illustratively, if pods double from 5 to 10 to 20 in each of the next 3 years, at roughly $2 million per pod, QUMU could add on $10 million of ARR in 2021, an incremental $20 million in 2022 and $40 million in 2023, suggesting a revenue run rate of $100 million exiting 2023.  Of course, it is not this simple, and there will be revenue churn, but we believe there is a lot of room for the company to create material shareholder value over the next few years.   We will learn a more about the company’s progress in the coming quarters.

We believe the risk reward in Qumu is attractive and we like the set up.

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Execution

Potential for increase in 2021 guidance later iin the year

Customer wins

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