BlackLine Counts On APIs For Growth

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About: BlackLine, Inc. (BL)
by: Sramana Mitra
Summary

APIs are great ways to integrate with third-party systems.

However, if BlackLine wants to make strategic acquisitions, APIs alone would make integrating these acquisitions cumbersome and expensive.

If BlackLine puts in place a PaaS strategy, inviting other application developers to build on its platform, giving them access to its customers, it would be a powerful way to broaden its capabilities.

According to a Market Study Report published earlier this month, the global accounting software market is estimated to grow 7% annually to $17.3 billion in 2024. The report pegs the industry at $11.4 billion last year. Cloud-based financial software provider BlackLine (NASDAQ:BL) recently announced its fiscal fourth quarter results that continued to surpass market expectations.

BlackLine's Financials

Revenues for the quarter grew 25% over the year to $62.32 million, compared with the Street's estimate of $61.65 million. EPS of $0.03 also was significantly ahead of the market's expected $0.01 per share. It ended the quarter with a net loss of $7.7 million.

By segment, subscription and support revenues grew 25% to $59.6 million and professional services revenues grew 17% to $2.75 million.

Among other metrics, BlackLine added 137 net new customers in the quarter to end with more than 2,630 customers. Net user base grew to 222,619 and it achieved a dollar-based net revenue retention rate of 108% at the end of the quarter.

BlackLine ended the year with revenues growing 30% to $227.8 million and an adjusted net income of $0.11 per share.

For the current quarter, BlackLine forecast revenues of $62.8-$63.8 million with a non-GAAP loss of $0.02-$0.00 per share. The market was looking for revenues of $63.3 million with a loss of $0.01 per share for the quarter. BlackLine expects revenues of $275-$280 million for the year with an EPS of $0.14-$0.17 vs. a market estimate of $277.7 million in revenue with an EPS of $0.15.

BlackLine's Growing Partnerships

BlackLine has been expanding its market reach by focusing on building APIs that connect with other ERP providers and by the expansion of its partner ecosystem. Last year, it entered into a reseller agreement with SAP (NYSE:SAP) and now has formal partnerships with three of the big four consulting firms in the world. More than 60% of its largest deals of the year were driven by a partner and BlackLine noticed that the average deal size for partner involved deals was "demonstrably higher."

The reseller agreement allows SAP to resell BlackLine's solutions that complements SAP's own ERP Financials solutions, including the SAP S/4HANA. The reseller agreement with BlackLine will make it easier for SAP's global customers to adopt BlackLine's financial close technology. Early results show that SAP is turning out to be a valuable partner for BlackLine.

BlackLine is not tying itself down to SAP. Its solution is ERP agnostic and already offers connectors to more than 30 source systems. It's building its library of connectors to offer solutions for multiple ERP platforms. Last quarter, it announced the release of a connector for Oracle ERP (NYSE:ORCL) that can automatically integrate Oracle E-Business Suite financial data into BlackLine's cloud financial close solution. Using the connector, BlackLine will get access to GL balances, subledgers, GL transactional data and currency rates to help users with account balance and transactional reconciliation.

Additionally, the company continued to upgrade its product offering and integrated machine learning capabilities in Transaction Matching to help with advanced and automated reconciliations for its customers. It also released new dashboards that help with identifying quality, timeliness and accuracy of accounting results. Finally, it released BlackLine Compliance, a product that's focused on managing internal control in organizations. The offering integrates risks, policies and procedures, controls, issues, and audit programs in a cloud-based system that helps accelerate and simplify audits and project management and provides better control over financial activity.

BlackLine is focusing on an API route to drive growth. It's building connectors that can extract relevant data from ERP solutions to help with automating and simplifying the financial close process. APIs are great ways to integrate with third-party systems. However, if BlackLine wants to make strategic acquisitions, APIs alone would make integrating these acquisitions cumbersome and expensive.

Instead, or in addition to its API strategy, if BlackLine puts in place a PaaS strategy, inviting other related application developers to build on its platform, giving them access to its customers, it would be a powerful way to broaden its capabilities beyond its core.

Its stock is trading at $47.79 with a market capitalization of $2.6 billion. It touched a 52-week high of $58.11 in September last year. It has recovered from the 52-week low of $34.01 it had fallen to in November last year.