Intrinsic value of ServiceSource International - SREV

Previous Close

$3.70

  Intrinsic Value

$0.30

stock screener

  Rating & Target

str. sell

-92%

Previous close

$3.70

 
Intrinsic value

$0.30

 
Up/down potential

-92%

 
Rating

str. sell

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  244
  249
  256
  263
  271
  280
  289
  300
  311
  323
  335
  349
  363
  379
  395
  412
  431
  450
  471
  492
  515
  539
  565
  591
  619
  649
  680
  713
  748
  784
Variable operating expenses, $m
 
  98
  100
  103
  105
  109
  112
  116
  120
  124
  129
  134
  139
  145
  151
  157
  164
  172
  179
  188
  196
  205
  215
  225
  236
  247
  259
  271
  284
  298
  312
Fixed operating expenses, $m
 
  174
  178
  181
  185
  190
  194
  198
  202
  207
  211
  216
  221
  226
  231
  236
  241
  246
  252
  257
  263
  268
  274
  280
  287
  293
  299
  306
  313
  320
  327
Total operating expenses, $m
  273
  272
  278
  284
  290
  299
  306
  314
  322
  331
  340
  350
  360
  371
  382
  393
  405
  418
  431
  445
  459
  473
  489
  505
  523
  540
  558
  577
  597
  618
  639
Operating income, $m
  -20
  -28
  -28
  -28
  -28
  -27
  -26
  -25
  -23
  -21
  -18
  -14
  -11
  -7
  -3
  2
  7
  13
  19
  26
  33
  41
  50
  59
  69
  80
  91
  103
  116
  130
  145
EBITDA, $m
  -4
  -23
  -23
  -23
  -23
  -22
  -20
  -19
  -17
  -14
  -11
  -8
  -5
  0
  4
  9
  15
  21
  27
  35
  42
  51
  60
  69
  80
  91
  103
  116
  129
  144
  159
Interest expense (income), $m
  2
  10
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  18
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
Earnings before tax, $m
  -29
  -37
  -38
  -38
  -38
  -38
  -37
  -36
  -35
  -33
  -31
  -28
  -25
  -22
  -19
  -15
  -10
  -5
  0
  6
  12
  19
  26
  34
  43
  52
  62
  73
  84
  96
  109
Tax expense, $m
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  3
  5
  7
  9
  12
  14
  17
  20
  23
  26
  30
Net income, $m
  -32
  -37
  -38
  -38
  -38
  -38
  -37
  -36
  -35
  -33
  -31
  -28
  -25
  -22
  -19
  -15
  -10
  -5
  0
  4
  9
  14
  19
  25
  31
  38
  45
  53
  61
  70
  80

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
  291
  298
  305
  314
  323
  334
  345
  357
  371
  385
  400
  416
  434
  452
  472
  492
  514
  537
  562
  588
  615
  643
  674
  706
  739
  775
  812
  851
  892
  936
Adjusted assets (=assets-cash), $m
  120
  291
  298
  305
  314
  323
  334
  345
  357
  371
  385
  400
  416
  434
  452
  472
  492
  514
  537
  562
  588
  615
  643
  674
  706
  739
  775
  812
  851
  892
  936
Revenue / Adjusted assets
  2.108
  0.838
  0.836
  0.839
  0.838
  0.839
  0.838
  0.838
  0.840
  0.838
  0.839
  0.838
  0.839
  0.836
  0.838
  0.837
  0.837
  0.839
  0.838
  0.838
  0.837
  0.837
  0.838
  0.838
  0.837
  0.838
  0.837
  0.837
  0.838
  0.839
  0.838
Average production assets, $m
  38
  44
  45
  46
  48
  49
  51
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  78
  81
  85
  89
  93
  98
  102
  107
  112
  117
  123
  129
  135
  142
Working capital, $m
  218
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
Total debt, $m
  135
  137
  141
  146
  151
  157
  163
  170
  178
  186
  194
  204
  214
  224
  235
  247
  260
  273
  287
  302
  317
  334
  351
  370
  389
  409
  431
  454
  477
  502
  529
Total liabilities, $m
  179
  177
  181
  185
  190
  196
  203
  210
  217
  225
  234
  243
  253
  263
  274
  286
  299
  312
  326
  341
  357
  373
  391
  409
  428
  449
  470
  493
  517
  542
  568
Total equity, $m
  127
  114
  117
  120
  123
  127
  131
  136
  140
  146
  151
  157
  164
  170
  178
  185
  193
  202
  211
  221
  231
  242
  253
  265
  277
  291
  304
  319
  334
  351
  368
Total liabilities and equity, $m
  306
  291
  298
  305
  313
  323
  334
  346
  357
  371
  385
  400
  417
  433
  452
  471
  492
  514
  537
  562
  588
  615
  644
  674
  705
  740
  774
  812
  851
  893
  936
Debt-to-equity ratio
  1.063
  1.200
  1.210
  1.220
  1.230
  1.240
  1.250
  1.260
  1.270
  1.280
  1.290
  1.300
  1.300
  1.310
  1.320
  1.330
  1.340
  1.350
  1.360
  1.370
  1.370
  1.380
  1.390
  1.400
  1.400
  1.410
  1.420
  1.420
  1.430
  1.430
  1.440
Adjusted equity ratio
  -0.492
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -32
  -37
  -38
  -38
  -38
  -38
  -37
  -36
  -35
  -33
  -31
  -28
  -25
  -22
  -19
  -15
  -10
  -5
  0
  4
  9
  14
  19
  25
  31
  38
  45
  53
  61
  70
  80
Depreciation, amort., depletion, $m
  16
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
Funds from operations, $m
  -2
  -32
  -33
  -33
  -33
  -32
  -32
  -30
  -29
  -27
  -25
  -22
  -19
  -16
  -12
  -7
  -3
  2
  8
  13
  18
  23
  29
  35
  42
  49
  57
  65
  74
  84
  94
Change in working capital, $m
  -6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  4
  -32
  -33
  -33
  -33
  -32
  -31
  -30
  -29
  -27
  -24
  -22
  -19
  -15
  -11
  -7
  -2
  3
  8
  13
  18
  24
  29
  36
  42
  50
  58
  66
  75
  84
  95
Maintenance CAPEX, $m
  0
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
New CAPEX, $m
  -26
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
Cash from investing activities, $m
  -29
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -10
  -12
  -12
  -13
  -13
  -13
  -15
  -15
  -16
  -16
  -18
  -18
  -19
  -21
Free cash flow, $m
  -25
  -37
  -38
  -39
  -39
  -38
  -38
  -37
  -36
  -34
  -32
  -30
  -27
  -24
  -21
  -17
  -13
  -8
  -3
  1
  6
  10
  16
  21
  27
  34
  41
  49
  57
  65
  75
Issuance/(repayment) of debt, $m
  0
  3
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  23
  24
  25
  26
Issuance/(repurchase) of shares, $m
  2
  40
  41
  41
  42
  42
  41
  41
  40
  38
  37
  34
  32
  29
  26
  22
  18
  14
  9
  5
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1
  43
  45
  46
  47
  48
  47
  48
  47
  46
  46
  43
  42
  39
  37
  34
  31
  27
  23
  20
  17
  17
  17
  18
  19
  20
  21
  23
  24
  25
  26
Total cash flow (excl. dividends), $m
  -25
  5
  6
  7
  8
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  27
  33
  40
  47
  54
  62
  71
  80
  90
  101
Retained Cash Flow (-), $m
  21
  -40
  -41
  -41
  -42
  -42
  -41
  -41
  -40
  -38
  -37
  -34
  -32
  -29
  -26
  -22
  -18
  -14
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
Prev. year cash balance distribution, $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 flow adjustment, $m
 
  14
  14
  14
  15
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
Cash available for distribution, $m
 
  -34
  -34
  -34
  -33
  -33
  -32
  -30
  -28
  -26
  -24
  -21
  -17
  -14
  -10
  -5
  0
  5
  11
  12
  13
  16
  22
  28
  34
  41
  49
  57
  65
  74
  84
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
 
  -33
  -31
  -30
  -28
  -25
  -23
  -20
  -18
  -15
  -12
  -10
  -7
  -5
  -3
  -2
  0
  1
  2
  2
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
Current shareholders' claim on cash, %
  100
  89.3
  79.7
  71.1
  63.6
  57.1
  51.4
  46.5
  42.3
  38.7
  35.6
  33.1
  31.0
  29.2
  27.8
  26.7
  25.8
  25.2
  24.8
  24.6
  24.5
  24.5
  24.5
  24.5
  24.5
  24.5
  24.5
  24.5
  24.5
  24.5
  24.5

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 -10.2
Price to Sales 1.3
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 81.6
Price to Free Cash Flow -14.8
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 $239 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 40.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $170 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 7.1% 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 5.7%.

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 18.1%.

Life of production assets of 10 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 -1.9%. 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 - $112 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 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 to Present at Upcoming Investor Conferences   [May-18-18 09:00AM  Business Wire]
▶ ServiceSource: 1Q Earnings Snapshot   [May-03-18 05:32PM  Associated Press]
▶ ServiceSource posts 4Q profit   [Feb-12-18 04:55PM  Associated Press]
▶ ServiceSource reports 3Q loss   [Nov-08-17 05:37PM  Associated Press]
▶ ServiceSource Unveils Refresh of Global Brand   [Oct-23-17 12:00PM  Business Wire]
▶ 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]
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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