Ping: Cloud And Safety. Value And Growth

Summary

• PING is a recently IPO'd company with a good growth outlook and solid financial position.
• The company offers a value proposition in the cybersecutity/cloud niche.
• This company is well positioned to continue to achieve double digit growth and increase its profitability.

Thesis Summary

Ping Identity Holding Corp. (NYSE:PING) is a recently IPO'd company in the cybersecurity sector focused on cloud and customer use solutions. It has a proven track record of profitability, a unique value proposition, and an attractive growth outlook. Although we don't have much historical data to make a complete assessment, I believe the company is undervalued and it offers an attractive investment opportunity.

Company Overview

PING was recently IPO'd, back in September at an initial price of $20. Since then, the shares achieved highs of $27 upon encouraging fourth-quarter results. The price has fallen much in line with overall markets during the past couple of weeks.

The company provides cybersecurity solutions at an enterprise level and has been especially successful in implementing cloud-based solutions. While there is not much historical information on the company, we can at least assess the performance over the last year. Let's begin with revenue:

Source: 10-Q

As we can see in the Income Statement, Ping has two m<in sources of revenue; Subscriptions and Professional services. Like many companies offering software solutions, Ping sells its product through subscription packages of varying lengths. The company has a very healthy revenue growth of around 14%. In terms of ARR (Annual Recurring Revenue), the company has achieved 23% growth.

As far as profitability, the company has maintained a similar gross margin, ~84%, with costs increasing at the same rate as revenues. The EBITDA margin is 21.23% but the company is now just about getting to the break-even point, with EPS coming in at 0.01 in the last months of 2019.

Moving onto the balance sheet, the IPO has not lead to a great expansion of the BS, instead. Most of the funding received went towards reducing long-term debt.

Source: 10-Q

The post-IPO balance sheet is very healthy in terms of asset coverage and debt to equity which of course is a great positive. Looking at the overall performance, PING has managed to maintain a very good growth rate while deleveraging the company. On the surface, the numbers look good to me, but let's dive deeper into what the company offers.

Value Proposition

One could argue PING is at the center point of two high growth sectors; Cybersecurity and Cloud. I have already talked extensively about the cloud sector in my Microsoft article. As far as cybersecurity goes, the demand has been increasing consistently over the last few years, especially at the enterprise level. As companies become more and more technologized and everything gets stored in their servers or the cloud, the need for protection becomes higher. This is especially true of companies in the financial sector and those handling confidential data such as government contractors and law-firms.

PING is not the only company in this space. Big names in the sector include the likes of Okta Inc. (OKTA). However, Ping does seem to present some advantages over its competition. Mainly, Ping's security solutions seem to be a lot more flexible and also appear to be better geared towards cloud solutions.

PING advertises itself as a best-in-class when it comes to service integrations. In this regard, the idea is that PING's software is more "flexible" to the extent that it can easily be used in addition to other programs and anywhere. One such example of this is the compatibility of the system with Azure and AWS. Furthermore, PING's flexibility allows its customers to deploy the services on the cloud, on-site or a hybrid of this. This idea is best captured in the earnings call.

To underscore this point, many of the world's leading enterprises, including over 50% of the Fortune 100, all 12 of the largest U.S. banks, 8 of 10 of the largest biopharmaceuticals, 4 of 5 of the largest healthcare plans and 5 of 7 of the largest U.S. retailers have chosen ping for our advanced hybrid cloud solutions, ease of integration, deployment flexibility and proven ability to scale with security.

Hugo Doetsch - Vice President, Finance and Corporate Development

PING doesn't only offer top-notch cybersecurity services, it also offers enterprises and programmers the tools to integrate their software more efficiently, helping them reduce IT costs.

Growth Catalysts

I have already talked extensively in my Microsoft article about the cloud sector. I will only remark here that the sector is anticipated to grow at 12.5% CAGR for the next 2 years according to data from Statista. Cybersecurity is also poised to grow at double-digit rates. Cybersecurity Ventures anticipates a 12-15% YoY growth through 2021.

But the largest growth catalyst I see in PING's near term future is not that related to overall market growth, but the one coming from increased revenues from existing users. Already, we are seeing a trend within PING's customers of increasing the extent of PING's services. The bottom line is, PING's excellent customer service has helped them retain and expand the revenues from their existing clients. Not only is PING bringing the security systems of these companies up to date, but it is also working with them to increase capabilities and applications.

Furthermore, PING's main area of success has for a long time been that of customer use cases. To this extent, as mentioned in the earnings call, the market is even larger than the enterprise itself, as customer bases grow faster than employee ones.

Valuation and Takeaway

Given the financial solidity of the company and high decently high growth rates, I would consider investing in this company. I believe the only reason this company isn't more highly valued is that there isn't a long enough track record of performance. Also, from a growth perspective, investors looking at a 14% growth rate might not get too excited.

However, from a pure value standpoint, if the company maintains its current performance, which I believe it will, we could easily see the stock price double by this time next year. While, again, this is not applicable due to the scarcity data, this company trades at a P/S of 0.07 and a Price/Book of 2.64, compared to an industry average of 4.13.

In conclusion, what we have here is a rare instance of a recently IPO'd tech company with an already established track of profitability, an attractive growth outlook, and a fairly unique value-proposition.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Sss3d]

I think P/S is $1.8B market cap valuation divided by $250m yearly revenue or 7.5 PS and not 0.07. Help me understand if my math is wrong!

[Stop The Printer]

The beer virus is doing an absolute number on this stock!

[Manzanita Research]

I bought more PING on today's dip. I originally bought it at 17 around the time of the IPO and sold all at 28. I bought back a smaller position at 24 and sold half of it at 29. With this dip I was able to bring my position size up and average down for my third time trading PING. I have no idea what'll happen the next few months... could easily go lower, but I am confident a year from now PING at worst be at current prices and at best new highs in the 40s. Just IMO.

[Millennial_Tyler]

some very good timing

[Manzanita Research]

Nice article. PING has been very frustrating to own since their prior ER which included a strong revenue beat and guidance. Though it hit new highs after that it has steadily been in a downtrend even before the market turned south. The growth may not be exhilarating but given they have just achieved a profit and have one of the lowest P/S ratios in the sector I am dumbfounded why this stock just won't rise. Perhaps getting the IPO lockup expiration out of the way on 3/17/2020 will clear the deck? I can't figure it out but holding on for now.

[Millennial_Tyler]

Their guidance left a lot to be desired. They may just be very conservative and this will pay off big time next qtr but its hard to go crazy on the stock when you arent predicting the numbers you would expect for the industry they are in. I'm Long the stock its just difficult to buy the dip after listening to earnings. However I cant say i'm concerned about the investment as its likely the safest play.

[Expanding Universe]

@The Value Trend , thank you for your piece. I quite enjoyed it. Ping is one of the best kept secrets of the 2019 class of IPOs. @Manzanita Research, after yesterday and this morning's obscene selloff of Ping, I backed up the truck and loaded up on more shares. I've been in since they went public as I have colleagues who swear by the company's necessity in the workplace. I can't speak to any exact reason why this one hasn't popped but the patient will be rewarded. It's absolutely clear to me that their market penetration is solid and growing steadily but they remain under the radar of many equity investors. This is purely conjecture but perhaps the fact that they aren't in Silicon Valley could be part of it? In any case, I very much believe that Ping's valuation is bound to change. Their product suite is robust, nimble and easily adaptable in the identity management space and is best looked at the way one looks at utilities. They are necessary , as is the case with cybersecurity in general, in any market environment as the risk mitigation is far to important to a company's stability. To my mind, given the potential improvised work scenarios due to the Corona virus in the coming months, they will only stand to benefit from more necessary deployment for security reasons. @Millennial_Tyler, I simply think they're conservative. Personally, I'd rather they blow the lid off with a surprise blowout than disappoint due to short term hubris.

[Millennial_Tyler]

@Expanding Universe I'm in the same boat as you and did end up adding some yesterday. Just trying to justify the market reaction.