Intrinsic value of ServiceSource International - SREV

Previous Close

$3.59

  Intrinsic Value

$0.34

stock screener

  Rating & Target

str. sell

-91%

  Value-price divergence*

-54%

Previous close

$3.59

 
Intrinsic value

$0.34

 
Up/down potential

-91%

 
Rating

str. sell

 
Value-price divergence*

-54%

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

We calculate the intrinsic value of SREV 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, %
  0.40
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  253
  258
  264
  271
  278
  287
  296
  306
  317
  329
  341
  355
  369
  385
  401
  418
  437
  456
  477
  498
  521
  545
  571
  598
  626
  656
  687
  720
  755
  791
  830
Variable operating expenses, $m
 
  289
  295
  303
  311
  321
  331
  342
  355
  368
  382
  396
  412
  430
  448
  467
  488
  509
  532
  556
  582
  609
  637
  667
  699
  732
  767
  804
  843
  884
  927
Fixed operating expenses, $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
Total operating expenses, $m
  273
  289
  295
  303
  311
  321
  331
  342
  355
  368
  382
  396
  412
  430
  448
  467
  488
  509
  532
  556
  582
  609
  637
  667
  699
  732
  767
  804
  843
  884
  927
Operating income, $m
  -20
  -31
  -31
  -32
  -33
  -34
  -35
  -36
  -38
  -39
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -84
  -88
  -92
  -97
EBITDA, $m
  -4
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -72
Interest expense (income), $m
  2
  5
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
Earnings before tax, $m
  -29
  -35
  -34
  -35
  -36
  -37
  -38
  -39
  -41
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -93
  -97
  -102
  -107
Tax expense, $m
  3
  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
Net income, $m
  -32
  -35
  -34
  -35
  -36
  -37
  -38
  -39
  -41
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -93
  -97
  -102
  -107

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  186
  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
  306
  122
  125
  128
  132
  136
  140
  145
  150
  156
  162
  168
  175
  183
  190
  198
  207
  216
  226
  236
  247
  259
  271
  284
  297
  311
  326
  342
  358
  375
  394
Adjusted assets (=assets-cash), $m
  120
  122
  125
  128
  132
  136
  140
  145
  150
  156
  162
  168
  175
  183
  190
  198
  207
  216
  226
  236
  247
  259
  271
  284
  297
  311
  326
  342
  358
  375
  394
Revenue / Adjusted assets
  2.108
  2.115
  2.112
  2.117
  2.106
  2.110
  2.114
  2.110
  2.113
  2.109
  2.105
  2.113
  2.109
  2.104
  2.111
  2.111
  2.111
  2.111
  2.111
  2.110
  2.109
  2.104
  2.107
  2.106
  2.108
  2.109
  2.107
  2.105
  2.109
  2.109
  2.107
Average production assets, $m
  38
  38
  39
  40
  41
  42
  44
  45
  47
  49
  51
  53
  55
  57
  59
  62
  65
  67
  71
  74
  77
  81
  84
  88
  93
  97
  102
  107
  112
  117
  123
Working capital, $m
  218
  33
  33
  34
  35
  36
  37
  39
  40
  41
  43
  45
  47
  48
  51
  53
  55
  57
  60
  63
  66
  69
  72
  75
  79
  83
  87
  91
  95
  100
  105
Total debt, $m
  135
  66
  69
  72
  75
  78
  82
  87
  91
  96
  102
  108
  114
  120
  127
  135
  142
  151
  159
  169
  179
  189
  200
  211
  223
  236
  249
  263
  278
  294
  310
Total liabilities, $m
  179
  110
  113
  116
  119
  122
  126
  131
  135
  140
  146
  152
  158
  164
  171
  179
  186
  195
  203
  213
  223
  233
  244
  255
  267
  280
  293
  307
  322
  338
  354
Total equity, $m
  127
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  39
Total liabilities and equity, $m
  306
  122
  126
  129
  132
  136
  140
  146
  150
  156
  162
  169
  176
  182
  190
  199
  207
  217
  226
  237
  248
  259
  271
  283
  297
  311
  326
  341
  358
  376
  393
Debt-to-equity ratio
  1.063
  5.410
  5.490
  5.570
  5.670
  5.770
  5.870
  5.970
  6.070
  6.180
  6.280
  6.390
  6.490
  6.590
  6.690
  6.780
  6.880
  6.970
  7.050
  7.140
  7.220
  7.300
  7.380
  7.450
  7.520
  7.590
  7.650
  7.710
  7.770
  7.830
  7.880
Adjusted equity ratio
  -0.492
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -32
  -35
  -34
  -35
  -36
  -37
  -38
  -39
  -41
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -93
  -97
  -102
  -107
Depreciation, amort., depletion, $m
  16
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
  23
  25
Funds from operations, $m
  -2
  -27
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -79
  -83
Change in working capital, $m
  -6
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
Cash from operations, $m
  4
  -28
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
  -65
  -69
  -72
  -76
  -79
  -83
  -87
Maintenance CAPEX, $m
  0
  -8
  -8
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
New CAPEX, $m
  -26
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
Cash from investing activities, $m
  -29
  -9
  -9
  -9
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -13
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
Free cash flow, $m
  -25
  -36
  -35
  -36
  -37
  -38
  -40
  -41
  -43
  -44
  -46
  -48
  -50
  -53
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -92
  -96
  -101
  -106
  -111
  -116
Issuance/(repayment) of debt, $m
  0
  -69
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
Issuance/(repurchase) of shares, $m
  2
  107
  34
  35
  36
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  99
  104
  109
Cash from financing (excl. dividends), $m  
  1
  38
  37
  38
  39
  41
  42
  44
  46
  48
  49
  52
  54
  57
  59
  61
  65
  67
  71
  74
  78
  81
  85
  89
  94
  99
  103
  108
  114
  120
  125
Total cash flow (excl. dividends), $m
  -25
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Retained Cash Flow (-), $m
  21
  -107
  -34
  -35
  -36
  -37
  -38
  -40
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
Prev. year cash balance distribution, $m
 
  186
  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
 
  81
  -32
  -33
  -34
  -35
  -36
  -37
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -65
  -69
  -72
  -75
  -79
  -83
  -87
  -91
  -95
  -100
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
 
  78
  -29
  -28
  -28
  -27
  -26
  -25
  -24
  -23
  -21
  -20
  -19
  -18
  -16
  -15
  -13
  -12
  -11
  -9
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
  -1
Current shareholders' claim on cash, %
  100
  50.0
  23.8
  11.3
  5.4
  2.5
  1.2
  0.6
  0.3
  0.1
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

ServiceSource International, Inc. (ServiceSource) is a provider of customer and revenue lifecycle solutions that power enterprise revenue relationships, partnering with business to business technology and technology-enabled companies. The Company operates through two segments: Managed Services, and Cloud and Business Intelligence (CBI). The Company delivers through service teams and integral cloud-based technologies from its database of service. By integrating managed services, cloud software and data, the Company provides its clients with insights into their end customers businesses, end-to-end management and service-contract renewals process. As of December 31, 2016, it managed approximately 143 engagements across 66 clients. Its solutions are designed to optimize recurring revenue across various revenue models, distribution models and segments, including hardware, software, Software-as-a-Service (SaaS), industrial systems, technology-enabled healthcare and life sciences.

FINANCIAL RATIOS  of  ServiceSource International (SREV)

Valuation Ratios
P/E Ratio -9.9
Price to Sales 1.3
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 79.1
Price to Free Cash Flow -14.4
Growth Rates
Sales Growth Rate 0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 116.7%
Cap. Spend. - 3 Yr. Gr. Rate 39.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 106.3%
Total Debt to Equity 106.3%
Interest Coverage -14
Management Effectiveness
Return On Assets -9.5%
Ret/ On Assets - 3 Yr. Avg. -15.5%
Return On Total Capital -11.9%
Ret/ On T. Cap. - 3 Yr. Avg. -18.6%
Return On Equity -23.3%
Return On Equity - 3 Yr. Avg. -31.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 34.8%
Gross Margin - 3 Yr. Avg. 31.9%
EBITDA Margin -4.3%
EBITDA Margin - 3 Yr. Avg. -14.3%
Operating Margin -7.9%
Oper. Margin - 3 Yr. Avg. -16.9%
Pre-Tax Margin -11.5%
Pre-Tax Margin - 3 Yr. Avg. -20.6%
Net Profit Margin -12.6%
Net Profit Margin - 3 Yr. Avg. -21.3%
Effective Tax Rate -10.3%
Eff/ Tax Rate - 3 Yr. Avg. -5.2%
Payout Ratio 0%

SREV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SREV stock intrinsic value calculation we used $253 million for the last fiscal year's total revenue generated by ServiceSource International. The default revenue input number comes from 2016 income statement of ServiceSource International. 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 SREV stock valuation model: a) initial revenue growth rate of 2% 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 SREV is calculated based on our internal credit rating of ServiceSource International, 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 ServiceSource International.
    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 SREV stock the variable cost ratio is equal to 111.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SREV 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 ServiceSource International.

Corporate tax rate of 27% is the nominal tax rate for ServiceSource International. 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 SREV 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 SREV are equal to 14.8%.

Life of production assets of 2.5 years is the average useful life of capital assets used in ServiceSource International 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 SREV is equal to 12.6%. 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 - $127 million for ServiceSource International - 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 89.189 million for ServiceSource International 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 ServiceSource International at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ ServiceSource reports 2Q loss   [Aug-08-17 12:02AM  Associated Press]
▶ ServiceSource Reports Second Quarter 2017 Financial Results   [Aug-07-17 04:05PM  Business Wire]
▶ These George Soros Stocks Are Losing Big So Far in 2017   [Jun-19-17 10:15AM  Motley Fool]
▶ George Soros' Worst Performing Stocks of 2017 So Far   [May-23-17 04:03PM  Motley Fool]
▶ ServiceSource reports 1Q loss   [May-08-17 05:00PM  Associated Press]
▶ ServiceSource reports 4Q loss   [04:40PM  Associated Press]
▶ ServiceSource Appoints Patricia Elias as General Counsel   [Sep-20-16 10:00AM  Business Wire]
▶ ServiceSource bulls bet on momentum   [Sep-07-16 10:02AM  optionMONSTER]
Financial statements of SREV
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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