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Blackbaud: Future Prospects Are Uncertain With Declining Fundamentals

May 05, 2020 12:04 AM ETBlackbaud, Inc. (BLKB)
Stefan Ong profile picture
Stefan Ong


  • Blackbaud has strong switching costs in a niche industry.
  • Its past acquisitions have increased the debt burden for the company.
  • Valuation appears cheap, but it comes with worse operating fundamentals and a risky outlook.

Blackbaud (NASDAQ:BLKB) has underperformed the S&P over the past 10 years, with returns at 115% compared to S&P's 140%. This is mainly due to the company's deteriorating sales growth and margins. Blackbaud's acquisitive nature and large debt load also increase the risk for the company in the future. The company's valuation is cheap compared to its peers, but it also has worse operating fundamentals.

(Source: Seeking Alpha Data)

Growth has been fueled by product development but mostly acquisitions

Blackbaud is the leading company powering the social good community. It has millions of users across over 100 countries, and 80% of influential nonprofits use its platform. By providing multiple software solutions like relationship management, payment services, and financial management, it has penetrated deeply into the niche fundraising and nonprofit market.

Revenue has grown from $320 million in 2010 to 900 million in 2019, representing an 11% compounded revenue growth rate. This growth has been driven by the company's shift towards cloud solutions and acquisitions. Blackbaud has migrated its on-premises software to the Sky Platform, which provides more flexibility in scaling its business in this niche.

(Source: Investor Presentation)

Blackbaud has also been acquiring companies like Just Giving in 2017 and Alternative.ly in 2016. This has allowed the company to grow its total addressable market by roughly $4 billion. Since its revenue is $900 million in the latest fiscal year, penetration is less than 10%. As such, the company still has a long runway for growth. To further penetrate the market, Blackbaud would likely acquire and consolidate smaller companies, while strengthening its sales team.

(Source: Investor Presentation)

Switching costs are high for the company

Having attracted nearly 80% of influential nonprofits, Blackbaud is likely to possess some form of switching costs. Being the leader in this space helps it create worth of mouth around its

This article was written by

Stefan Ong profile picture
Focused on buying high-quality businesses and holding them for the long term. My initial investment strategy was to buy dividend-yielding stocks and REITs to generate passive income. This changed recently as I have more time to study companies. Besides, finding businesses that can reinvest earnings and compound returns at a higher rate is much more rewarding.

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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