When you think about investing in companies that are automating the world, UiPath (PATH) might come to mind, or maybe you recall Amazon's (AMZN 2.57%) warehouse robots. While both of these companies are helping automate the world, there is one company automating a critical necessity of every enterprise's everyday life.
BlackLine (BL 1.84%) has been working on automating the accounting industry for 20 years, attracting some of the world's most renowned companies, like PepsiCo (PEP 0.91%) and Mastercard (MA -0.14%). Here are three reasons why you should think about making BlackLine your next investment.
An under-the-radar automation play
BlackLine wants to completely transform how accounting departments operate by bringing solutions to the workplace that increase efficiency and accuracy. One way it does this is by automating labor-intensive, low-thinking operations. An accountant's time can be better spent working on something complex rather than something mundane but time-consuming.
BlackLine also offers services that assist in every step of tracking, collecting, and reporting financial information. BlackLine's Financial Close Management offers solutions ranging from automated transaction matching, which analyzes and reconciles high volumes of individual transactions from different sources, to compliance.
The company's wide offerings even include intercompany accounting for parent organizations. BlackLine's product line up, made up of both automated and manual solutions, along with its ability to automate 85% of a company's manual activity has allowed the business to attract some big-name customers. Nearly 50% of the Fortune 500 and 50% of the Fortune 50 are BlackLine customers. With 3,600 customers in 13 different countries, BlackLine has become a runaway leader in its market according to Gartner's (NYSE: IT) Magic Quadrant.
As the market leader, the company has been able to maintain impressive margins: In Q2 2021, the company reported a gross margin of 80%, an operating margin of 8%, and a free cash flow margin of 16%. Q2 2021 revenue reached $102 million, growing 23% from the year-ago quarter. The company's loyal customer base is helping with this -- spending 6% more today than it did one year ago -- while customer churn was just 2%.
While it's been rare for customers to leave BlackLine, they've been joining in vast numbers: Customer count reached 3,600 in Q2, representing a 20% compound annual growth rate since 2016. BlackLine had 27 customers spending over $1 million and over 320 customers spending over $250,000 -- the number of customers spending over $250,000 has increased 35% annually since 2015 -- demonstrating extreme customer loyalty.
The company has generated nearly $32 million in free cash flow so far this year, and while it isn't profitable -- losing $25 million in Q2 2021 -- its non-GAAP net income reached roughly $10 million. The GAAP loss was due mostly to stock-based compensation and a large interest expense.
The company faces competition from companies like Workiva (WK -0.24%), a compliance company, and UiPath, but no major competitor directly focuses on the accounting space as BlackLine does. Even if a competitor were to arise, it would be unlikely to take BlackLine's customers away because of the company's low customer churn.
Even though it trades at a high valuation -- 18 times sales -- BlackLine trades at a significant discount compared to other companies in the automation space. UiPath trades at 34 times sales, and ServiceNow (NOW 2.84%), a company using automation to improve enterprise workflow, trades at 26 times sales. While 18 times sales is not cheap, BlackLine's automation is not being fully valued, as the other companies' are. It's only a matter of time until the market realizes the benefits that BlackLine's automation brings to firms, making today's prices intriguing.
Even as the market leader, the company has a 6% market share or less in three of its top solutions, and with a just 1.4% penetration of its $28 billion total addressable market, the company still has an immense opportunity ahead. At an appealing valuation, this under-the-radar stock could prove to be a huge winner over the next 10 years as automation transforms businesses, and you could take advantage of that by giving BlackLine the green light to join your portfolio today.