1-Year Price Target
Price Consider Buying: $34
Price of Fair Value: $42
Price Consider Selling: $51
About the company
LogMeIn (NASDAQ:LOGM) provides on-demand solutions that enable remote access and support to computers and electronic devices connected to the Internet using a web browser. The on-demand software is offered as a service on a subscription (Saas) basis while hosted on the company's data centers. LogMeIn's solutions improve the productivity of both end users and professional help desk personnel by enabling seamless connectivity to remote computers. The firm was founded in 2003 and is based in Woburn, Mass.
- Access: $1.4B
- Support: $6.9B
- Collaboration: $2.5B
While management highlighted they anticipate an additional $1.5 - 2.0m of sales and marketing expense in the December quarter investing in the sales and marketing of join.me to maximize the product’s launch in the quarter, we expect that this will have a compounded effect on other LOGM products, spilling over to 2011 revenue numbers as well.
LOGM at first looks expensive however, there are other few things an investor should note:
- The stock currently has aprox. $153m in Cash ~ equivalent to $6.46/share in Cash
- TTM Free Cash Flow / Sales is at 29%, in line with its comps but far ahead of companies like Procter & Gamble's (NYSE:PG) 6.13%. If cash is king, then LOGM just generates for each dollar sold 4.7x more amount of Free Cash Flow. Therefore, it is plausible to say that LOGM earnings are of better quality, validating a higher P/E ratio than Procter and Gamble.
- Large user base and efficient customer acquisition model
- Proprietary technology that drives differentiation
- Low service delivery costs
- Cost efficient sales and marketing model
- High lifetime customer value
Hard: Above expectation results for its new and core products => Analyst re-rating of the stock
Soft: Continued improvement renewal rates and customer acquisition rate
Hard: Legal Proceedings - On September 8th, 2010, Canadian-based 01 Communique Laboratory Inc. [TSX:ONE], filed a patent infringement suit against LogMeIn
Soft: Inability to Convert Free Users to Paying Subscribers negatively impacting the cost of infrastructure-related costs associated with hosting a large user community
Soft: Large competitors with deep pockets
Having insider and VC money in the company is a double edged sword. There is an inherent interest of the main stakeholders to have their company perform. However, Prism Investment Partners IV is of a 2001 vintage, which raises suspicion. Generally, VC funds do not hold their investment for longer than 11 years. I am worried that they might sell and given the size of the stake, put pressure on the stock in the short term.
Disclosure: I am long LOGM.