Couchbase, Inc.Long
12/4/24 - $base - M&A tgt in '25 at this px... buy
12/4/24 :: VROCKSTAR :: BASE
M&A tgt in '25 at this px... buy
- really niche wrench in the tech toolbox product, don't love putting M&A into my investment thesis (b/c "great" if does, but it feels too "hopeful" to include these scenarios and i tend toward conservatism)
- but realistically, 15% growth on the topline is inflation+ (the way i measure inflation not the teevee), check. gross margins of course phenom. bc it's HQ zero marginal cost software, 85%+ check. but EBITDA mgn while improving FO SHO, means it will take 2-3 y before we see some juice. and that's the oppty to roll it into something like an azure, aws etc. etc.
- so what M&A does here is allow us to put a "floor" on the valuation given there's not much cash burn (a lot of SBC - but that's pretty std for a co of this size sub 700 mm EV at today's -23% stonk action), so i'm comfortable putting an asterisk on SBC in this case.
- R&D of about 70 mm and assuming some de-risked, but nonetheless still cautious elements might be "discounted" (a lot goes into this comment btw so if u want more of my logic, comment below) at perhaps 15%. sub private equity 20% style returns, but above the 5-10% you'd see for HQ software that's not megacap. at 70/.15 = 450-500 mm. that's basically 2/3 of the company. my rule of thumb is typically that if u "value" the R&D and it's more than half the enterprise value (esp in a biz where cash burn is constrained and balance sheet is healthy - both checks here), you're buying sub fair value.
- so the floor here is probably a $500 mm valuation which given the net cash situation means another 200 mm off the market cap or roughly 20-25% lower on the stock. that puts you near $12/13 a share. while things can always get ugly and trends can reverse that's practically the floor here IMO and anything under there would be considered free money pickup as we enter year-end and before another quarter.
- so with that sort of downside, and upside... let's see: 5x sales today on EV probably "fair" but if we consider B2B being valued at 10x (larger names nonetheless) we could easily shoot in the middle and suggest 6x minimally which again is equivalent to the floor downside risk... and doesn't consider the CAGR sort of compounding of the revenue -> EBITDA in time.
- so the risk/ reward is probably a 1.5 : 1 here. not *amazing*, but the sell off seems enough to finally pique my interest.
- as you guys know i'm keeping cash balance high and not looking to really ape stuff. also the B2B stuff is ripping and for the stuff that's not... woof (like this). so if we get a pullback and then a re-rip, a ticker like this probably sinks lower and takes longer to see a recovery. for that reason i'm using some ITM calls, keeping exposure small.
dec 20 15 C's (for the retrace/ but playing nimble)
jan 17 15C's (as a substitute for building a position and allows me to get enough exposure to care, but not enough to care if we -15-20% lower from here and i can build an actual share position into YE).
what do u think?
V
BASEM&A tgt in '25 at this px... buy
- really niche wrench in the tech toolbox product, don't love putting M&A into my investment thesis (b/c "great" if does, but it feels too "hopeful" to include these scenarios and i tend toward conservatism)
- but realistically, 15% growth on the topline is inflation+ (the way i measure inflation not the teevee), check. gross margins of course phenom. bc it's HQ zero marginal cost software, 85%+ check. but EBITDA mgn while improving FO SHO, means it will take 2-3 y before we see some juice. and that's the oppty to roll it into something like an azure, aws etc. etc.
- so what M&A does here is allow us to put a "floor" on the valuation given there's not much cash burn (a lot of SBC - but that's pretty std for a co of this size sub 700 mm EV at today's -23% stonk action), so i'm comfortable putting an asterisk on SBC in this case.
- R&D of about 70 mm and assuming some de-risked, but nonetheless still cautious elements might be "discounted" (a lot goes into this comment btw so if u want more of my logic, comment below) at perhaps 15%. sub private equity 20% style returns, but above the 5-10% you'd see for HQ software that's not megacap. at 70/.15 = 450-500 mm. that's basically 2/3 of the company. my rule of thumb is typically that if u "value" the R&D and it's more than half the enterprise value (esp in a biz where cash burn is constrained and balance sheet is healthy - both checks here), you're buying sub fair value.
- so the floor here is probably a $500 mm valuation which given the net cash situation means another 200 mm off the market cap or roughly 20-25% lower on the stock. that puts you near $12/13 a share. while things can always get ugly and trends can reverse that's practically the floor here IMO and anything under there would be considered free money pickup as we enter year-end and before another quarter.
- so with that sort of downside, and upside... let's see: 5x sales today on EV probably "fair" but if we consider B2B being valued at 10x (larger names nonetheless) we could easily shoot in the middle and suggest 6x minimally which again is equivalent to the floor downside risk... and doesn't consider the CAGR sort of compounding of the revenue -> EBITDA in time.
- so the risk/ reward is probably a 1.5 : 1 here. not *amazing*, but the sell off seems enough to finally pique my interest.
- as you guys know i'm keeping cash balance high and not looking to really ape stuff. also the B2B stuff is ripping and for the stuff that's not... woof (like this). so if we get a pullback and then a re-rip, a ticker like this probably sinks lower and takes longer to see a recovery. for that reason i'm using some ITM calls, keeping exposure small.
dec 20 15 C's (for the retrace/ but playing nimble)
jan 17 15C's (as a substitute for building a position and allows me to get enough exposure to care, but not enough to care if we -15-20% lower from here and i can build an actual share position into YE).
what do u think?
V
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