Miles P. Jennings, Jr.'s  Instablog

Thanks to a 219% increase in XBRL filings, EDGAR Online (EDGR 1.50, 12-month range: .60 - 2.20) just reported higher revenue and income for the 2009 third quarter.  Importantly, XBRL filing revenue represented 28.2% of total revenue, a major accomplishment.  Company management has focused on delivering the company's highly automated filing solution.  These results were achieved in an environment where only 500 of the approximate 12,000 SEC-reporting companies have been mandated to file in XBRL.

Operating income swung more than $1.0 million from $(629,000) to $451,000. Shareholders of EDGAR Online have been investing and building their massive company financial database (now formatted in XBRL) for about ten years; and red ink has painted their results quarter after quarter. Their incredibly bold corporate bet on XBRL's becoming the worldwide financial reporting standard was an extraordinary one for a nano-cap company with limited resources.

The big issue now is how their market share will evolve in the next 1-2 years. Although they now have an exclusive partnership with RR Donnelley (RRD), the market for XBRL conversion and filing services is huge---far broader than Donnelley's existing customer base.  Donnelley works with a lot of large and well established US companies, yet EDGAR Online probably receives the same fee for converting and filing a large company's financials to XBRL as for a small company. So, how EDGAR Online will build partnerships to address the potential total XBRL market is still unclear.  The company is now in negotiations with RR Donnelley regarding their annual pricing for services.  

There are lots of ways to evaluate a company's market share position. Since filing in XBRL requires the use of advanced software programs based on the complex U.S. SEC XBRL taxonomy, I thought it might be interesting to see if some of the leading high-tech firms are now using EDGAR Online's XBRL solution.  Here is list of only 16 high-tech filing clients out of about 155 EDGR/RRD filing clients---along with those companies' respective market caps:

Microsoft 250B
Apple 174B
Google 172B
Amazon 51B
EMC 34B
eBay 29B
Lockheed 27B
Yahoo 22B
Raytheon 18B
Salesforce 7B
Fiserv 7B
Citrix Systems 7B
BMC Software 7B
Electronic Arts 6B
Verisign 5B
Akamai 4B

These companies no doubt are well aware of competing XBRL services yet the EDGR/RRD partnership was their choice.  In their conference call, management stated that EDGAR Online's proprietary I-Metrix Xcelerate solution created twice the XBRL filings as its next competitor.

EDGR's report was their first report that included a quarterly period subject to the SEC mandate.  The business potential of providing this service is significant since it is recurring revenue---so long as the XBRL standard is in place. Worldwide, there are many markets in various stages of implementing XBRL as the required standard for corporate financial reporting.

In addition to the SEC-reporting business potential, other areas like mortgage-backed securities, municipals, corporate actions, and derivatives offer potential for XBRL service providers.

I am long EDGR and my company uses EDGAR-Online XBRL data-sets.

Determining portfolio weights for a set of large-cap companies (or for an ETF, Fund, or Index) can present analytical challenges.  However, before delving into company-specific results and their respective projected earnings, a simple mirror-weighting of the portfolio can serve as a valuable starting point in the stock allocation process. 

For example, let's assume a portfolio of $100,000 with the following 5 companies to be held: AAPL, GOOG, IBM, MSFT, ORCL.  The sole weighting factor of Earnings is specified.

The MirrorWeight Widget is used to calculate the portfolio weights.  To create a mirror-weighted portfolio yourself at www.mirrorweight.com, you must enter only the portfolio's size, the stock symbols, and your choice of weighting factor(s).  

Here are the calculated portfolio weights---mirroring the companies' earnings:

Mirror-Weighted Portfolio

Stock	Shares	Price	Position  Value	Portfolio Weight	P/E	P/B
GOOG	21	548.29	11,629	11.63%	35.43	5.18
AAPL	67	197.37	13,129	13.13%	31.38	6.43
IBM	267	120.65	32,163	32.16%	12.81	10.54
MSFT	773	28.59	22,091	22.09%	18.65	6.23
ORCL	960	21.87	20,988	20.99%	19.63	4.24

Note: Showing just whole shares and rounding causes slight variance from true data.

To check the math and demonstrate the MirrorWeight method, we only have to invert the P/E ratios and calculate those % as follows:

MirrorWeight Check

Stock	P/E	E/P	E/P to Total E/P
GOOG	35.43	.0282	11.6%
AAPL	31.38	.0319	13.1%
IBM	12.81	.0781	32.2%
MSFT	18.65	.0536	22.1%
ORCL	19.63	.0509	21.0%
Total		.2427	100%

The above example uses earnings as the factor, but you may also specify book value or a combination of earnings and book value.  In looking at the above example, IBM has the highest portfolio weight since its P/E Ratio is lowest.  And note that the portfolio weights in the first table are exactly the same as the "E/P as % Total E/P" in the second table.

Other MirrorWeight Widgets and their programming code may be found at www.mirrorweight.com.  

Here are two discussions about the MirrorWeight approach:
Method:  www.mirrorweight.com/ratios.htm
Market Example:  www.ownershipview.com/method.htm

MirrorWeight Widget financial data is provided daily by EDGAR Online, Inc. and includes about 10,000 companies.  Data is in as-reported XBRL format. The portfolio display is via OV Engine. 

I own OV Metrics, LLC (private) which company operates MirrorWeight as an operating division.  I am long EDGR.  

Today EDGAR Online (EDGR) issued a special report to shareholders announcing their market-share data for the first reporting period subject to the SEC's XBRL mandate.  See my earlier summary report on the competitive landscape for this XBRL filings market.  

EDGAR Online and RR Donnelley (RRD) formed a partnership to provide XBRL conversion services to companies reporting to the SEC.  See their joint website at www.TryXBRL.com.

June 30, 2009 marked the end of the first quarterly period when large public companies were required to file their Form 10-Qs in XBRL data format.  A closer analysis of the potential impact of XBRL filings business on EDGR suggests that this new XBRL filings service may well have a material impact on EDGR's future financial results.   

The second wave of new XBRL filers in 2010 is estimated to include 1,500 - 2,000 reporting companies, and the final wave in 2011 is for about 10,000 additional companies. It is important to note that this new filing requirement is not a one-time event.  XBRL is now the required ongoing format for SEC Forms 10-Q and 10-K.

Depending on EDGAR Online's competitive performance, the XBRL filings business may become a source of high recurring revenue for the company. EDGAR Online is the only publicly traded company that has a material share of its revenue tied to XBRL conversion and XBRL-based financial analytics software programs.  Its I-Metrix Pro is now offered as an Excel add-in and also offered via Thomson Reuters's (TRI) Checkpoint financial management service.

As part of its filing mandate, the SEC now requires XBRL-reporting companies to present XBRL-sourced data in their IR website presentations. As a result of new rules, the investor relations communications market is changing.  Note the IR product offered by EDGAR Online and Q4 Web Systems.  XBRL interactive data offers broad functionality for IR communication services, and I suspect there will be many new web services offered by small web development companies as well as large printers like RR Donnelley and Bowne (BNE).

I am long  EDGR.




 

 

Yesterday was the first time I'd seen complete XBRL filing results for Bowne and Merrill.  Aliya Sternstein's Nextgov.com article helps to clarify the early leaders in the race to provide XBRL filing services.  The article notes that Bowne & Co. had "filed XBRL documents on 120 public companies," and "Merrill processed documents for about 70 companies."  

By combining these new results with the XBRL Cloud Report, it is possible to estimate the leading filers' market shares.   There were a total of 427 XBRL filings made to the SEC pursuant to the SEC mandate as of Sept. 14, 2009. There may be some additional quarterly reports made for companies filing late or with non-calendar quarterly reporting dates.

RR Donnelley/EDGAR Online   
149 XBRL filings
34.9% market share
RR Donnelley (RRD 21.71, 52-week range 5.54 - 25.52 ) is a leading print and communications company with global revenue of $11.6 billion in 2008.  EDGAR Online (EDGR 1.89, 52-week range 0.60 - 2.49) is a financial information company providing XBRL data and solutions to financial markets with 2008 revenue of $19.5 million.  See their joint website for XBRL filings business.  As an example of the partnership's commitment, note RRD's upcoming 33-city tour scheduled with Ernst & Young.

Bowne & Co.  (BNE 6.99, 52-week range: 0.85 - 12.10)
120 filings
28.1% market share
Bowne, with $767 million in 2008 revenues, provides shareholder reporting and communication services.  The company has a strategic partnership with Rivet Software, a leader in XBRL software tools.

Merrill Corporation
70 filings
16.4% market share
Merrill is a private company providing XBRL and other advanced solutions for business.  Fujitsu notes Merrill as one of its partners in the XBRL field.

EDGARfilings (Thomson Reuters)
55 filings
12.9%
Thomson Reuters (TRI 34.30, 52-week range 19.30 - 35.38) is a global information provider of $11.7 billion revenue for 2008.  The company has strategic partnership with Rivet Software for XBRL data and with EDGAR Online for the I-Metrix financial analytic tool.  In the last couple of years Thomson Reuters has expanded its XBRL activities including the purchase of EDGARfilings.

Other Filers
33 filings
7.7% 

Based on the current filing cost for XBRL reports to the SEC of roughly $20,000-$40,000 per year per company, that rate of XBRL filing  would translate into $240 - $480 million per year after all companies were required to file in 2011.  

XBRL is an emerging market.  For instance, the XBRL US consortium recently launched XBRL US Labs to consider new applications of this advanced interactive financial reporting standard.  In November, XBRL US will sponsor a national convention in New York.  See scheduled speakers here.  Current SEC filings in XBRL are a small vs. the analytics, auditing, business intelligence, and government agency data requirements to be spawned by the SEC XBRL mandate.

In past reports regarding EDGAR Online, the company's market share of XBRL filings was estimated based on early voluntary XBRL filers.  Now, with the actual first-quarter data available for the first-phase filers, it  has been confirmed that the Donnelley/EDGAR Online partnership is the leading provider of XBRL-formatted filings to the SEC.  Using the mid-point of the above revenue range and adjusting for its assumed 50% interest in the Donnelley/EDGR partnership, annual revenue to EDGR is estimated to be as follows:

@34.8% market share
Year 1 with 149 filers:
$2,235,000

@continuation of above plus 30% of 1,800 new filers
Year 2 with 689 filers:
$10,335,000

@continuation of above plus 25% of 9,700 new filers
Year 3 with 3,114 filers:
$46,710,000

Total of EDGR revenue in first 3 years of SEC mandate:
 $59,280,000

Since the new XBRL filing revenue is incremental to EDGAR Online's regular data solutions and analytics business, the potential $59,280,000 of incremental revenue could have a positive impact on the company's bottom line, especially since EDGR has over $35 million of NOLs and a gross margin of around 75%.

In considering the likelihood of the above assumptions, it is worthwhile to note that the company has already converted all the U.S. companies' financial results into XBRL data for about 10 years!  EDGAR Online did that over the last 5 years or so to build their giant XBRL interactive database of U.S. companies.  Since they now daily tag and store daily SEC reports---and have for many years---they have developed highly automated and proprietary data capture and handling techniques for using the SEC's EDGAR System.  I understand that they have around 1.5 million rules that "sit atop" their XBRL database just for converting financial data to XBRL format.

Even if one assumes that prices for XBRL conversion will decline after the initial filing stage for companies, it is widely expected that there will be many new applications for XBRL such as for proxy statements, mortgage-backed securities, and other SEC reporting data.  EDGAR Online also has a partnership with Canadian News Wire for the Canadian XBRL conversion market.

This is a fairly dramatic opportunity, and it appears not to be lost on the company's management. They announced in the second-quarter conference call that they have engaged Jordan, Edmiston Group to consider strategic equity partners.  

Long-term, EDGAR Online controls the only XBRL-formatted database for U.S. reporting companies, with a deep reach into more than 6,000 data-points on each company.  Trying to evaluate 10 years of usable and as-reported data on the 10-Q and 10-K filings of U.S. companies plus the associated proprietary data-mining techniques of retrieving and handling that data, is  tricky.  Now, with the new XBRL standard now in force, the value of EDGAR Online's database has no doubt become significantly more relevant to major financial information companies.  And, the SEC mandate will probably give I-Metrix analytic tool a boost in the Thomson-Reuters channel to CPAs and attorneys---who are especially interested in accessing as-reported company financial data.

EDGAR Online's common stock (Nasdaq: EDGR) currently trading at 1.89 (52-week range 0.60 - 2.49).  Its current $50.6 million market cap is less than its expected 3-year revenue from just the XBRL filings business.  Even in the current downturn in the financial service area, EDGR generated $553,000 in Adjusted EBITDA for the quarter ended June 30, 2009.

I am long EDGR stock and purchase EDGAR Online electronic data feeds for my company's portfolio analytic tool.









 

XBRL Cloud has just released its "XBRL Cloud EDGAR Dashboard," an objective third-party study of XBRL filers' compliance with the new SEC mandate. Using data-mining tools, the Cloud captures all sorts of filing details and competitive information. This report is exactly what the SEC wants---transparency of financial reporting by SEC-filing companies and timely public access to comparative standards-based financial reports.  The SEC has mandated that all SEC-reporting companies start filing in XBRL between now and 2011.

The XBRL Cloud report provides information regarding the competitive landscape. Here is a breakdown of the companies mentioned in the report: 

Cos.  Share  Filing Company
136  36.6%  EDGAR Online, Inc. (EDGR), joint with RR Donnelley (RRD)
  79  21.2     Bowne Co.  (BNE)
  57  15.3     Fujitsu  (FJTSY)
  49  13.2     EDGARfilings (a unit of Thomson Reuters (TRI)
  45  12.1     Rivet Software (private)
    4    1.1     Clarity Systems (private)
    2      .5     Business Wire (a unit of Berkshire Hathaway (BRK.B)
372  100%  

The XBRL Cloud was the first organization to publish the names of companies that have filed their June 30th 10-Q in Extensible Business Reporting Language.  The report is close to real-time and may in fact be real-time now.  In the past I have referred to projected share data, so consider this an update to those forecasts.

The SEC mandate's phase-in schedule anticipates around 12,000 companies filing SEC reports in XBRL for the June 2011 quarter.  In 2009 just 500 of the largest companies file, then 1,800 in 2010 of the remaining "accelerated filers", and the balance of around 10,000 companies in summer of 2011.

EDGAR Online's [EDGR 2.00, market cap. $53 million, 52-week range: .60 - 2.49] high market share will no doubt decline as new agents and systems are developed to file that data accurately and on time.  However, since 2010 is the first time that footnotes must be filed (not block-style as now required), it is likely that EDGR's leadership position will remain healthy during this period when other companies are just now developing their filing procedures.  And in the very long term, a larger percentage of companies will likely file themselves.

With revenue now about $20 million per year, the impact on EDGR's revenue may well be significant over the next few years.  Looking at just the first 372 company filers, EDGAR Online's revenue on 136 clients should be around $2.0 million annually, or 10% of current total revenue. If they are able to win 20% of this market long-term, EDGAR Online could well increase its revenue by around $35-40 million over the next few years. Since they have converted all US companies already to XBRL for their own database operations, the margins become very good on filings after the initial filing for a client company.  Gross margin overall is now around 75%, they are EBITDA-positive, and have over $35 million of NOLs. The cost of building the XBRL database over the last 6 years or so---as well as analytic programs that use that database---has severely impacted their shareholders' equity.

One of the competitive tests it seems, which EDGR has passed with flying colors, is having converted some of the largest and complex companies in the US to XBRL SEC filing.  Here are a few of the clients that have selected the RR Donnelley and EDGAR Online partnership to file their XBRL financial reports to the SEC:

Alcoa, Amazon, Amgen, Apple, BankAmerica, Boeing, Comcast, Ebay, Exxon, General Dynamics, Google, Lockeed Martin, McDonald's, Moody's, NYSE, Morgan Stanley, Raytheon, State Street, Verizon, Visa, Disney, and Yahoo.

The XBRL conversion business is not one that is easily entered by companies not conversant with the XBRL standard.  EDGR's process is highly automated and the validation checks and conversion methods that have been extensively tested. After all, they have already converted 10-Qs and 10-Ks to the XBRL standard for about 10,000 US companies. And, their database is far deeper than the minimum SEC current requirements. Most investors know of EDGAR Online as the provider of fundamental financial data for Yahoo, Google, MSN, MarketWatch, etc.  The XBRL filings market potential is not really on the radar screen yet.  But, as 12,000 new filers are required to file, I suspect more attention will be paid to a company built around the validity of the XBRL standard for financial reporting.

EDGAR Online is running with the elephants---giant financial information providers like Thomson Reuters (TRI), McGraw Hill (MHP), Moody's, FactSet (FDS), MSCI (MXB) and Bloomberg. They compete with EDGAR Online on various financial analytic web-based programs and financial information services. But, unlike EDGAR Online, none of these providers controls their own XBRL interactive financial database for US companies and mutual funds.  And EDGR streams Chinese, Japanese, and Korean XBRL too for specialized applications.

EDGAR Online has  found a little running space of its own.

I am long EDGAR Online and my company uses their XBRL data-set.

 

EDGAR Online, Inc. [EDGR $1.35 Nasdaq, $41 million cap, 52-week range: 2.83 - .60] will report Q3 earnings in a couple of weeks.  I expect continuing lackluster legacy product sales but significant gains in XBRL filings revenue and the number of XBRL corporate clients served.  Emerging XBRL market trends suggest a far larger potential for EDGAR Online than I had originally thought.

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