Thread by @bizalmanac

9 Years ago, Marc Andreesen theorized that "...software companies are poised to take over large swaths of the economy". Boy was he right! (1/14)

a16z.com/2011/08/20/why…

Since Andreesen’s prophetic essay, enterprise software sales have nearly doubled, growing from $245mm in 2010 to $456mm in 2019, a CAGR of 7.1% according to Gartner. In January 2020, Gartner projected increased growth of 10.5% for the industry through 2021 (2/14)

TechTarget operates highly trafficked and free to access websites featuring content geared towards purchasers of enterprise software; CIOs, CTOs and SMBs. Based on browsing and search data from their sites, TTGT sells sales leads to large enterprise software businesses (3/14)

From 2015-2019, TTGT's audience, sales and FCF/Shr. compounded at 4.9%, 4.6% and 19.6% while FCF margins and FCF / Assets improved by 815bps and 542bps. Customer count remained flat, either worrying or evidence of a resilient model (4/14)

Greg Strakosch has led TTGT since founding The Company in 1999. The Board and NEOs own 16.4% of stock. In the last decade, FDSO shrank by 32.5% while only ~3% of FCF was spent on acq., reflecting the ‘owners mindset’ Bain identifies below (5/14)

hbr.org/2016/03/founde…

Three similar but not perfect comparable companies to TTGT are Quinstreet, ZoomInfo and Garnter. Among the group of 4, TTGT has grown FCF/Shr. second most in 3Yrs., features the highest FCF ROA and the second highest EV / FCF multiple (6/14)

Gartner accomplishes the same 'Job to be Done' as TTGT but charges software buyers to access their research and analysis, in contrast to TTGT who provides free content and charges the software companies for sales leads (7/14)

Quinstreet and TTGT have a similar business model, acquiring and selling sales leads. Quinstreet does not produce content, but rather uses SEO, call centers and other means to identify interested buyers (8/14)

ZoomInfo augments sales processes similar to TTGT, but their service is sold as a subscription, includes far more data and is sold widely across industries and sectors (9/14)

TechTarget's EV / FCF valuation multiple recently crossed it's 3Yr. median of ~22x after bottoming <15x in the tech meltdown of late 2018 and the market panic of March 2020. In 2018, the EV / FCF multiple peaked at 40x (10/14)

TTGT's stock chart (2Yrs., below) mirrors its valuation multiple. The stock cleared two resistance / support levels and currently trades above a long-run uptrend (11/14)

TechTarget relies on the effectiveness of their SEO to attract readers to their sites. Google has the capability of undermining TTGT's entire business with changes to their search engine settings as would a competitor to Google (12/14)

The other existential threat to TechTarget is privacy regulations. Dramatic changes to personal data sharing norms and rules could reduce their readership and/or increase expenses (13/14)

TechTarget has not grown its roster of paying customer in four years! Explanations may be a saturated end-market or a poor sales effort, either serious causes for concerns. Yet without any growth in customers, FCF/Shr. CAGR of 20% evidences a very well run business (14/14)

Industry wide sales in Billions not Millions!