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Summary

  • Solid business model adds real value to customers.
  • Solid topline growth as Borderfree is already breaking-even.
  • Might become an interesting investment opportunity.

Borderfree (NASDAQ:BRDR) focuses on international commerce, operating a proprietary technology platform that enables US retailers to conduct transactions with consumers in over a 100 countries.

The company is showing healthy growth and is already breaking even. The real value it adds to customers makes the company quite appealing to prospective investors.

The Public Offering

Borderfree offers cross-border e-commerce solutions on a single platform. Retailers and brands use the integrated and scalable platform to develop a perfect web and mobile transaction experience with international shoppers. The company arranges multi-currency pricing, payment processing, cost calculations, custom clearance and even global logistics for the retailers within a 3-month period.

Borderfree sold 5 million shares for $16 apiece, thereby raising $80 million in gross proceeds. All shares were offered by the company itself with no shares being sold by shareholders.

The pricing of the offering took place at the high end of the preliminary offering range of $14-$16 per share set by the firm and its bankers.

Some 16% of the total shares outstanding were offered in the public offering. At current prices around $15 per share, the equity in the company is valued at $460 million.

The major banks that brought the company public were Credit Suisse (NYSE:CS), RBC Capital Markets, Pacific Crest Securities, Canaccord Genuity (OTCPK:CCORF), William Blair and Needham & Company.

Valuation

Borderfree operates in a huge market that is showing rapid growth. A Forrester Research report reveals that cross-border consumers will spend some $24 billion on goods purchased from US retailers in 2014. Borderfree is aiming to aid US retailers with the challenges of operating in these international markets.

Some of Borderfree's customers include Aeropostale (NYSE:ARO), J. Crew, Macy's (NYSE:M) and Under Armour (NYSE:UA), among others. In total, 158 e-commerce sites are powered by the company's platform for some 91 customers. Borderfree bills its customers on the back of a fee percentage on sales on contracts with multi-year terms. The company derives additional revenues from related services.

For 2013, Borderfree generated revenues of $110.5 million, which is up some 35.7% from the year before. The company posted a tiny $0.7 million loss, which compares to earnings of $0.2 million in 2012.

Important to notice is that revenue growth slowed to 23.8%, with revenues coming in at $35.9 million in the final quarter. Earnings for the holiday period were solid, however, more than doubling to $1.8 million.

Before the offering took place, Borderfree operated with $43.6 million in cash and equivalents with no debt outstanding. Factoring in the $80 million in offering proceeds, the company will operate with a net cash position of around $115 million. This values operating assets of the firm at around $345 million, the equivalent of 3.1 times annual revenues.

Investment Thesis

As noted above, Borderfree's public offering has been a modest success, although some of the enthusiasm for the company's prospects has faded. Shares were offered 6.7% above the midpoint of the offering range and quickly rose to a first day high of $21.25, for decent gains. Borderfree's shares were not immune to the recent sell-off in technology names, however, settling in a $14-$16 trading range.

Borderfree is not just a platform performing minor tasks for its retail clients. This becomes apparent as it generates roughly $110 million in revenues on a gross merchandise value of $448 million. This means that the company takes a cut of a quarter of the total value of traded merchandise, which is substantial. Interesting as well is the asset-light business model with no warehouses and distribution centers.

Increased gathering of data might be helpful for the company and its clients as well. Borderfree already monitors 2.1 million transactions per annum with consumers ordering an average of 1.7 times in 2013.

There are some risks as well. Of course, growth remains the biggest challenge, combined with expansion of the infrastructure. Other risks are the customer experience and the impact of adverse currency moves. Customer concentration is a bit of an issue, with its top 10 customers making up nearly 60% of revenues.

Despite the dramatic pullback since the highs in the days following the initial public offering, value is increasingly becoming more apparent. Growth, a real business model and lack of losses make Borderfree a distinction in today's public offering market.

At slightly lower levels, Borderfree might attract my interest.

Source: Borderfree: One Of The Most Appealing Recent Public Offerings