Intrinsic value of ChannelAdvisor - ECOM

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$11.50

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$11.50

 
Intrinsic value

$15.75

 
Up/down potential

+37%

 
Rating

buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ECOM stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  11.88
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
Revenue, $m
  113
  125
  137
  150
  163
  177
  191
  206
  221
  237
  254
  272
  290
  309
  328
  349
  370
  392
  415
  439
  464
  490
  518
  546
  576
  607
  640
  674
  710
  748
  787
Variable operating expenses, $m
 
  52
  56
  61
  67
  72
  78
  84
  90
  96
  103
  108
  115
  122
  130
  138
  147
  155
  165
  174
  184
  194
  205
  217
  228
  241
  254
  267
  282
  296
  312
Fixed operating expenses, $m
 
  84
  86
  88
  91
  93
  95
  97
  100
  102
  105
  108
  110
  113
  116
  119
  122
  125
  128
  131
  134
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
Total operating expenses, $m
  127
  136
  142
  149
  158
  165
  173
  181
  190
  198
  208
  216
  225
  235
  246
  257
  269
  280
  293
  305
  318
  332
  346
  362
  376
  393
  410
  427
  446
  464
  484
Operating income, $m
  -14
  -11
  -6
  0
  6
  12
  18
  25
  31
  39
  46
  56
  65
  73
  82
  92
  101
  112
  123
  134
  146
  158
  171
  185
  199
  215
  230
  247
  265
  283
  303
EBITDA, $m
  -6
  -5
  1
  7
  13
  19
  26
  33
  41
  48
  57
  65
  74
  83
  93
  103
  113
  124
  136
  148
  160
  174
  188
  202
  218
  234
  251
  269
  287
  307
  328
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  9
  9
  10
  10
Earnings before tax, $m
  -14
  -11
  -6
  -1
  5
  11
  17
  23
  30
  37
  44
  54
  62
  70
  79
  88
  98
  108
  118
  129
  140
  152
  165
  178
  192
  207
  222
  239
  256
  274
  293
Tax expense, $m
  -6
  0
  0
  0
  1
  3
  5
  6
  8
  10
  12
  15
  17
  19
  21
  24
  26
  29
  32
  35
  38
  41
  45
  48
  52
  56
  60
  64
  69
  74
  79
Net income, $m
  -8
  -11
  -6
  -1
  4
  8
  12
  17
  22
  27
  32
  39
  45
  51
  58
  64
  71
  79
  86
  94
  103
  111
  121
  130
  140
  151
  162
  174
  187
  200
  214

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  65
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  139
  82
  90
  98
  107
  116
  125
  135
  145
  156
  167
  178
  190
  202
  215
  228
  242
  257
  272
  288
  304
  321
  339
  358
  377
  398
  419
  442
  465
  490
  515
Adjusted assets (=assets-cash), $m
  74
  82
  90
  98
  107
  116
  125
  135
  145
  156
  167
  178
  190
  202
  215
  228
  242
  257
  272
  288
  304
  321
  339
  358
  377
  398
  419
  442
  465
  490
  515
Revenue / Adjusted assets
  1.527
  1.524
  1.522
  1.531
  1.523
  1.526
  1.528
  1.526
  1.524
  1.519
  1.521
  1.528
  1.526
  1.530
  1.526
  1.531
  1.529
  1.525
  1.526
  1.524
  1.526
  1.526
  1.528
  1.525
  1.528
  1.525
  1.527
  1.525
  1.527
  1.527
  1.528
Average production assets, $m
  18
  20
  22
  24
  26
  28
  30
  33
  35
  38
  40
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  82
  87
  92
  97
  102
  107
  113
  119
  125
Working capital, $m
  52
  -14
  -16
  -17
  -19
  -20
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -35
  -38
  -40
  -43
  -45
  -48
  -50
  -53
  -56
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -86
  -90
Total debt, $m
  1
  6
  12
  18
  24
  30
  37
  44
  51
  58
  66
  74
  82
  91
  100
  109
  119
  129
  140
  151
  163
  175
  187
  200
  214
  229
  244
  259
  276
  293
  311
Total liabilities, $m
  52
  57
  63
  69
  75
  81
  88
  95
  102
  109
  117
  125
  133
  142
  151
  160
  170
  180
  191
  202
  214
  226
  238
  251
  265
  280
  295
  310
  327
  344
  362
Total equity, $m
  87
  24
  27
  29
  32
  34
  37
  40
  43
  46
  49
  53
  56
  60
  64
  68
  72
  76
  81
  85
  90
  95
  101
  106
  112
  118
  124
  131
  138
  145
  153
Total liabilities and equity, $m
  139
  81
  90
  98
  107
  115
  125
  135
  145
  155
  166
  178
  189
  202
  215
  228
  242
  256
  272
  287
  304
  321
  339
  357
  377
  398
  419
  441
  465
  489
  515
Debt-to-equity ratio
  0.011
  0.260
  0.450
  0.610
  0.760
  0.880
  0.990
  1.090
  1.180
  1.260
  1.340
  1.400
  1.460
  1.520
  1.570
  1.610
  1.660
  1.700
  1.740
  1.770
  1.800
  1.830
  1.860
  1.890
  1.910
  1.940
  1.960
  1.980
  2.000
  2.020
  2.030
Adjusted equity ratio
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297
  0.297

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -8
  -11
  -6
  -1
  4
  8
  12
  17
  22
  27
  32
  39
  45
  51
  58
  64
  71
  79
  86
  94
  103
  111
  121
  130
  140
  151
  162
  174
  187
  200
  214
Depreciation, amort., depletion, $m
  8
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  23
  24
  25
Funds from operations, $m
  16
  -5
  1
  6
  11
  16
  21
  26
  31
  37
  43
  48
  54
  61
  68
  75
  83
  91
  99
  108
  117
  127
  137
  148
  159
  170
  183
  196
  209
  224
  239
Change in working capital, $m
  4
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
Cash from operations, $m
  12
  -6
  2
  8
  12
  17
  22
  27
  33
  39
  44
  50
  57
  63
  70
  78
  85
  94
  102
  111
  120
  130
  140
  151
  162
  174
  186
  200
  213
  228
  243
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
New CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from investing activities, $m
  -2
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -29
  -30
Free cash flow, $m
  10
  -11
  -4
  1
  6
  10
  14
  19
  24
  29
  34
  39
  45
  51
  57
  64
  71
  78
  86
  94
  102
  111
  120
  130
  140
  151
  162
  174
  186
  199
  213
Issuance/(repayment) of debt, $m
  -2
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
Issuance/(repurchase) of shares, $m
  1
  0
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -4
  5
  7
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
Total cash flow (excl. dividends), $m
  5
  -6
  2
  7
  12
  16
  21
  26
  31
  36
  42
  47
  53
  60
  66
  73
  81
  88
  96
  105
  114
  123
  133
  143
  154
  165
  177
  190
  203
  217
  231
Retained Cash Flow (-), $m
  -3
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
Prev. year cash balance distribution, $m
 
  65
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  57
  0
  5
  9
  14
  18
  23
  28
  33
  39
  44
  50
  56
  63
  69
  77
  84
  92
  100
  109
  118
  127
  137
  148
  159
  171
  183
  196
  209
  223
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  55
  0
  4
  8
  11
  13
  16
  18
  19
  20
  21
  21
  21
  21
  20
  19
  18
  17
  15
  14
  12
  11
  9
  8
  6
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  100.0
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
  99.1
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ChannelAdvisor Corporation provides software-as-a-service solutions worldwide. Its solutions enable its retailer and branded manufacturer customers to integrate, manage, and optimize their merchandise sales on various online channels. The company’s suite of solutions include various modules, including Marketplaces module that connects customers to third-party marketplaces; and Digital Marketing module, which connects customers to compare shopping Websites that allow customers to advertise products on search engines. It also offers Where to Buy solution that allows branded manufacturers to provide their Web visitors or digital marketing audiences with information about the authorized resellers that carry their products and the availability of those products; and Product Intelligence, a solution that provides branded manufacturers with insights about online assortment, product coverage gaps, pricing trends, and adherence by their retailers to content guidelines. ChannelAdvisor Corporation was founded in 2001 and is headquartered in Morrisville, North Carolina.

FINANCIAL RATIOS  of  ChannelAdvisor (ECOM)

Valuation Ratios
P/E Ratio -37.3
Price to Sales 2.6
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 24.9
Price to Free Cash Flow 29.9
Growth Rates
Sales Growth Rate 11.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate -16.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 1.1%
Total Debt to Equity 1.1%
Interest Coverage 0
Management Effectiveness
Return On Assets -5.9%
Ret/ On Assets - 3 Yr. Avg. -15.9%
Return On Total Capital -9.2%
Ret/ On T. Cap. - 3 Yr. Avg. -21.6%
Return On Equity -9.4%
Return On Equity - 3 Yr. Avg. -22%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 76.1%
Gross Margin - 3 Yr. Avg. 74%
EBITDA Margin -5.3%
EBITDA Margin - 3 Yr. Avg. -16.7%
Operating Margin -12.4%
Oper. Margin - 3 Yr. Avg. -24.4%
Pre-Tax Margin -12.4%
Pre-Tax Margin - 3 Yr. Avg. -24.4%
Net Profit Margin -7.1%
Net Profit Margin - 3 Yr. Avg. -23%
Effective Tax Rate 42.9%
Eff/ Tax Rate - 3 Yr. Avg. 13.3%
Payout Ratio 0%

ECOM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECOM stock intrinsic value calculation we used $113 million for the last fiscal year's total revenue generated by ChannelAdvisor. The default revenue input number comes from 2016 income statement of ChannelAdvisor. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ECOM stock valuation model: a) initial revenue growth rate of 10.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ECOM is calculated based on our internal credit rating of ChannelAdvisor, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of ChannelAdvisor.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ECOM stock the variable cost ratio is equal to 41.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $82 million in the base year in the intrinsic value calculation for ECOM stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for ChannelAdvisor.

Corporate tax rate of 27% is the nominal tax rate for ChannelAdvisor. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ECOM stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ECOM are equal to 15.9%.

Life of production assets of 5 years is the average useful life of capital assets used in ChannelAdvisor operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ECOM is equal to -11.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $87 million for ChannelAdvisor - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 26.249 million for ChannelAdvisor is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of ChannelAdvisor at the current share price and the inputted number of shares is $0.3 billion.


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COMPANY NEWS

▶ Two years after layoffs, job growth at ChannelAdvisor   [May-05-17 09:38AM  American City Business Journals]
▶ ChannelAdvisor reports 1Q loss   [May-04-17 07:49PM  Associated Press]
▶ ChannelAdvisor Adds Support for Fruugo Marketplace   [Apr-03-17 04:00AM  Business Wire]
▶ ChannelAdvisor Announces AutoCommerce 2017 Agenda   [Feb-28-17 08:00AM  Business Wire]
▶ ChannelAdvisor founder Wingo sells $1.1 million in stock   [Feb-27-17 11:02AM  at bizjournals.com]
▶ Martha Stewart to Keynote at Catalyst Americas 2017   [Feb-06-17 08:30AM  Business Wire]
▶ ChannelAdvisor Launches Algorithmic Repricer for Walmart   [Jan-26-17 08:30AM  Business Wire]
▶ eBay Takes Title Sponsorship of Catalyst Americas 2017   [Jan-19-17 04:15PM  Business Wire]
▶ What Hedge Funds Think about ChannelAdvisor Corp (ECOM)?   [Dec-14-16 07:08PM  at Insider Monkey]
▶ ChannelAdvisor Wins Two Prestigious UK Industry Awards   [Dec-05-16 03:30AM  Business Wire]
▶ ChannelAdvisor CEO: Why Wal-Mart's Jet.com deal is good for us   [Nov-04-16 02:10PM  at bizjournals.com]
▶ ChannelAdvisor CEO: Expect 'inflection' in 2017   [10:00AM  at bizjournals.com]
Stock chart of ECOM Financial statements of ECOM Annual reports of ECOM
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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