In today's episode of Market Foolery, host Chris Hill and Motley Fool contributor Abi Malin take a look at a few of the market's hottest stories, and then dive into a couple of companies that investors might want to check out. First, Tronc (TRNC +0.00%) popped a little today on the news that the media company is finally changing its awful name; but how does Tronc compare to its peers in an increasingly difficult industry?
Gunshot detection company ShotSpotter (SSTI 5.95%) has soared almost 200% since its IPO last year, but what's the long-term picture from here? And finally, investors who haven't yet looked into BlackLine (BL +1.05%) will probably want to give this financial accounting software company a chance after hearing some of these metrics. Tune in to find out more.
A full transcript follows the video.
This video was recorded on June 19, 2018.
Chris Hill: It's Tuesday, June 19th. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio, it's analyst Abi Malin. Thanks for being here!
Abi Malin: Thanks for having me!
Hill: We're going to dip into the Fool mailbag. There's only one story we can start with today, and longtime listeners know what that is. To paraphrase the words of William Shakespeare, we come to bury Tronc, not to praise it. Tronc is the online media company which is -- Tronc is a terrible name, and we've said that for two years, as others have said. People in the United States are familiar with the properties of this company. It's an online media company. It's The Chicago Tribune, The L.A. Times, The New York Daily News, The Baltimore Sun, etc.
Malin: Not The L.A. Times anymore, though.
Hill: That's true. Not The L.A. Times. But they basically have this conglomerate of very sizable news assets, and they are finally changing their name. Honestly, changing their name to anything would be better than Tronc, but they're embracing their roots, they're changing it to Tribune Publishing.
Malin: The name change happened back in 2016. The company was spun off of Tribune Media. They were trying to adapt this outdated image that they had and came up with tronc, all lowercase.
Hill: All lowercase. They explained in a video -- it's probably still up on YouTube. I remember at the time watching it and thinking, "This looks like a parody commercial that you would see on Saturday Night Live." They explained that Tronc, the way they came up with it, it's a combination of Tribune and online content. That explanation does not make the name any better.
Malin: No, it really doesn't. It was bad. I think this change is good for two reasons. The first is, originally, when they changed the name, I think they were trying to distinguish a bit from Tribune Media, which is a separate company. But Tribune Media is actually in discussions with Sinclair Broadcasting Group to be acquired, so I think that name is up for grabs again, and that distinguishing factor is no longer at play.
But I also think this is, in some ways, a really commendable moment, where a management team was just admitting that they did something stupid and backtracking. The original decision was not good, but I think the correction of it is actually very admirable.
Hill: Yes, absolutely. We saw this, obviously, in a much shorter time frame with Netflix and the whole Qwikster debacle, where they came out, they did that, and then very quickly backtracked. It is to Reed Hastings' credit that they made that decision quickly.
By the way, the stock is up 4% in the last few days on this news. We're going to take the tiniest of victory laps on this, because, as I wrote on Twitter, I feel like we had just a tiny bit to do with this, because we've been ridiculing this name from the start. Kudos to the management team for doing the right thing.
Let's talk about the business, though. This is a company with a market cap of around $600 million. The New York Times (NYT +0.19%) is a business that you've studied. In the broadest of senses, this is a comparable company. They're in the same line of work. They're looking for eyeballs online, they're presumably going to pursue the type of subscription strategy that The New York Times has done successfully. Because, whether you love The New York Times or you hate The New York Times, it's a $4 billion company, it is a stock that has done well over the last couple of years.
Malin: Yeah. I think the important distinguishing factor between those two companies, Tronc Media owns Chicago Tribune, The New York Daily News, Baltimore Sun, Orlando Sentinel, South Florida Sun, The Daily Press, The Morning Call of Allentown, and The Hartford Courant. I don't see that packaging as nearly as valuable as The New York Times. And The New York Times has definitely struggled. It's been a metamorphosis for them and their business and how they've captured readers.
I think, in a space where we have a lot of online content for free, charging for things gets harder, and you have to really prove your value. The New York Times has done that. They've demonstrated pricing power. They've really adapted, and they have this clout and this reputation for being accurate, punctual, first to the story, and a lot of very value-adding services. I don't know, necessarily, that this combination of papers that has that.
Hill: No, I think that's right. For everything you said, even when you combine all of those media markets, some of which are quite sizable here in the U.S., you're still not going to get to the point where it's the same amount of clout and respect that The New York Times has built up over the past century. I'm not suggesting they can go head-to-head with The New York Times as a public company and beat them. I am wondering, though, if they can take a page out of what The New York Times has done, and basically be successful in a smaller way.
Malin: Yeah, I think there's space for that. I think it's definitely an interesting opportunity. I just think, perhaps, in my own brain, I feel like there are more likely alternative investments that I would be more interested in.
Hill: Our Twitter account is @MarketFoolery. You can follow the show on Twitter. If you do follow us on Twitter, then you already know the news that producer Dan Boyd got engaged. He's over in Ireland, he's on a wonderful vacation, and got engaged. We'll absolutely be talking to Dan about that when he returns.
But, you can also submit questions on Twitter. We got a question from @Shantoram83, apologies if I'm mispronouncing that. The question is, "Any thoughts about SSTI? It is a software-as-a-service small-cap with retention rates over 100%." SSTI is the ticker symbol, the company is ShotSpotter, which just went public a year ago. The stock's done well. I mean, if you bought into this IPO, your stock is up almost 200%.
Malin: Like you said, this is a software-as-a-service company. They sell gunshot detection solutions for law enforcement officials and security personnel, primarily right now within the U.S., but they're also an international company, and open to those opportunities. They have about three key products. The first is ShotSpotter Flex, which is an outdoor public safety solution for cities and municipalities. The second is SST Secure Campus. That's really targeted toward universities and colleges. The third is ShotSpotter SiteSecure, which is -- they really serve a variety of customers, think malls or things like that, to help protect facilities in train stations, airports, freeways, things like that.
I think this is an interesting company. It's not one that I had looked at before, until we talked about it this morning, but I definitely think there's something here that could be really interesting.
Hill: Right now, the market cap is just over $400 million. Companies like this are always interesting to me because they're not going to consumers. When I think about the stocks that I have in my portfolio, a lot of them, the majority of them, are consumer-facing companies. This is not one of those.
ShotSpotter is looking to connect with, as you said, cities, municipalities, campuses -- and that can be educational campuses, that can be corporate campuses, as well. I'm always a little hesitant, in part because I feel like, any time you are investing or thinking about buying shares of a business-to-business company, you're working with a smaller data set, in terms of feedback that you get from customers. And, I suppose, in theory, you're also looking at a smaller addressable market.
Malin: I think that's an interesting point. Right now, the company is in 77 public safety customers, with coverage areas of 510 square miles in 88 cities and municipalities across the U.S. They estimate that can be as high as 1,400 cities. Qualifiers are four or more homicides per 100,000 people. Each of those cities could spend as much as $400,000 annually.
Then, they think they have an additional 5,000 college campuses and airports that each could spend about $100,000 annually. Then, internationally, that number's actually a lot lower, it's about 200 cities across the E.U., Central America, the Caribbean, South America, and Southern Africa. But, the price point on that would be a lot higher, so about $750,000 annually.
I think something that's particularly interesting in this case, to your point about maybe having a smaller addressable market and less feedback about whether or not this product works, our listener wrote in and talked about those retention rates being over 100%. In 2017, of the 77 ShotSpotter Flex customers, 40% expanded by an average of eight square miles, driving revenue retention up 141%.
Hill: OK, because I looked at that in the question, and I was like, "Wait a minute, how do you get a retention rate that goes north of 100%?"
Malin: Existing customers are spending more, which is actually a very good indicator of the fact that this product works, and places are seeing a very positive feedback.
The one thing that you have to be careful with companies that play in this space particularly, not only are they business-to-business, but a lot of these are governments and local agencies, so they're really dependent on federal funding and federal budgets and things like that, which can change pretty quickly. But, with the positive retention rates moving in that direction, north of 100%, I think that means that we're seeing some positive traction.
Hill: We were talking a couple of weeks ago in the studio about FoolFest, our investing conference, which was held earlier this month. You were busy at FoolFest. You were doing breakout sessions, you were doing mainstage sessions. Do you have a takeaway from the event? Every time I saw you, you were either onstage or, if you weren't onstage, there were a bunch of investors nearby asking you questions. So, I'm curious, when you think about FoolFest, what stands out in your mind?
Malin: FoolFest this year was really fun. It was a huge crowd. I think it was the biggest we've ever had, right?
Hill: I think it was, yeah, day two.
Malin: Yeah, day two was the biggest we've ever had. A lot of really exciting questions. I think there was a lot going on. Generally speaking, a lot to be excited about.
Hill: We were talking earlier, after you indulged my making fun of Tronc. We went down a little bit of a rabbit hole of, not just Qwikster, but, there are just some bad names out there. I feel like there's a business for someone, in terms of consulting. Even if it's just a feedback loop of, "We're thinking about changing the name of this product or our company to this," just bringing in a fresh set of eyes. There's a business there, for someone to go in and be like: "No, no, no. You're making a terrible mistake."
But, after you indulged me in all of that, you had mentioned a company I think I've only heard mentioned once or twice before, BlackLine. How did this come up at FoolFest?
Malin: One of our writers, TMFtypo, his first name's Brian, he brought this one to my attention, actually. It's called BlackLine. He brought it to my attention because I've recently worked on our Partnership Portfolio, which focuses on finding companies that are still founder-led, founder-run. He was like, "I can't believe you guys missed this one!" And then, as soon as he started talking to me about it, it was like five other people brought it up with me.
Hill: Independent of that conversation?
Malin: Independent of that conversation.
Hill: Oh, wow!
Malin: It was definitely one that was on our radar, and for whatever reason, missed the final cut. But, it's one that, after that, I've now started digging into a little bit more. They are a leading provider of cloud-based software to automate accounting and finance operations for organizations in that mid-market enterprise space.
Hill: So, they take the really boring world of accounting and make it easier for people?
Malin: That's correct, but I would argue that it's not necessarily always boring. The accounting processes that they automate are financial closing, account reconciliation, intercompany accounting, control assurance. They replace Excel spreadsheets, batch processing, manual control. One of the struggles in this area for companies is that there's a lot of hurry-up-and-wait. The goal with this product is that there's never a scramble, it's a constant loop of work being done.
I think it's really interesting. The company was founded in 2001 by Therese Tucker. She actually retired as CTO at SunGard Treasury Systems, but then she "got bored." So, she set out to make a wealth management software, actually, but she found that that was a hard industry to break into, and actually had customers requesting that she make some sort of solution for this financial accounting space. And that's how the company came to be. It's pretty interesting.
They have about 2,300 customers and more than 202,000 users across 150 countries. Again, you have net retention rates at above 100%, and a total addressable market of about $20 billion this year.
Hill: I like that, if nothing else out of this episode, I've learned that retention rates can go above 100%, and I now know what that means.
Malin: That is what that means.
Hill: Thank you for that. That's also a good origin story for the company, I like that. The ticker?
Malin: BL.
Hill: Alright. Abi Malin, I'll let you get back to work. Thanks for being here!
Malin: Thanks for having me!
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Austin Morgan, who's working double time this week, producing this podcast and Industry Focus. Shout-out to Austin. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!
