In September of 2013, I wrote about the IPO filing of one of the original B2B consortia, Covisint (here).  At the time, Covisint was showing good growth, but there were two related concerns:

  1. Revenue was 37% services, not higher margin subscription software
  2. As an EDI messaging company with a large services component, I wondered whether it would be valued more like SPS Commerce (7x sales) or GXS/Sterling (1.5-2.0x sales)?

More than a year later, we have a few answers.The stock went public at $10.00 per share 9/26/2013 (Symbol: COVS).  It traded recently at $2.50 per share–a little less than 1x sales.  What went wrong?

Two things:  a) the company is trying to manage down services revenue and b) the growth in subscription bookings has stopped.  Here’s the key guidance chart from their recent investor presentation:

Chart showing Covisint Revenue growth FY '10-FY'15 Guidance

It’s not clear to me why the subscription bookings have been so disappointing. Covisint made some initial progress diversifying into healthcare and are trying oil and gas as well, so perhaps those efforts are faltering.  Covisint does have a major automotive competitor in Europe, SupplyOn, that I’ve heard is doing well.

In any case, the stock is so cheap right now (relative to B2B networks generally–not relative to non-existent earnings) that it bears watching for signs of subscription growth. Ariba went through a similar period and then was able to figure out how to grow subscription revenue again, so I am empathetic.

The case for investing from Covisint (from the same investor presentation) is summarized as follows:

Covisint Diagram on why it is worthy of investment

It sounds good, but investors know that without growth, COVS will not make great money. Investors will wait on the sidelines until that changes.

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