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Keep A Lookout For ETWO, The Future Of Supply Chain Management

Mar. 30, 2021 3:14 PM ETE2open Parent Holdings, Inc. (ETWO)
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Seeking Alpha Analyst Since 2021

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Summary

  • ETWO is an award-winning Supply Chain Software company with customers such as Google, Microsoft, ExxonMobil, etc.
  • We believe ETWO to have a very good future; it provides cost-cutting measures for its customers, especially vital for today’s competitive environment.
  • A strong gross retention rate of 95% and an average customer tenure of 14 years shows its business quality.
  • Relatively cheap compared to their peers, trading at a multiple of 7.0 for EV/rev compared to the median of 11.7; 21.3 for EV/EBITDA compared to an average of 41.7 for its peers.
  • Outlook: We are bullish on ETWO as it has potential to be the next Salesforce, but we remain slightly cautious on its customer base growth and ETWO’s ability to cross-sell.
Industrial technology concept. Communication network. INDUSTRY 4.0. Factory automation.
Photo by metamorworks/iStock via Getty Images

A relatively unknown company, ETWO is an award-winning supply chain management software company that recently went public on 5 Feb 2021 through a merger with Neuberger Berman, a special purpose acquisition company (SPAC), with a market cap of USD2.4b. Despite being a young company it has already secured customers like Google and Microsoft. As such, we are very excited about the growth potential of ETWO and it could very well be the future of supply chain management.

Blue Chip customers and strong retention rateETWO has not only secured several big-name customers but was able to retain its customers, with a gross retention rate of 95%. This is a crucial metric to evaluate growth as it supports the quality of ETWO’s software. Moreover, it is very costly for supply chain companies to switch supply chain management, and hence customers are more likely to stay with their software-providing vendors.

Source: E2OPEN analyst presentation, slide 24

Cheap valuation relative to its peers and huge potential growthAt its current valuation, ETWO currently trades on an estimated EV/Rev multiple of about 7 versus a median of 11.7 and an estimated EV/EBITDA of 21.3 versus a median of 41.8. It is important to note that these ratios are an estimate and should not solely be used to evaluate the company.

More importantly, ETWO has huge growth potential with a Total Addressable Market (TAM) of USD1b. Together with its strong ability to retain customers, we feel ETWO can potentially follow in the footsteps of the CRM management company - Salesforce.

Source: E2OPEN analyst presentation, slide 49

Ability to scale and stay relevantETWO’s strong retention rate and large TAM will potentially allow it to scale to much greater heights. If this is not enough to excite you, we strongly believe that the cost-cutting benefits derived from ETWO’s software will continue to be relevant in the future as companies become more competitive. The ability of ETWO’s software to integrate other aspects of businesses would provide them an additional stream of income whilst further cutting costs for customers.

At its current valuation, we opine that ETWO is fairly priced right now at approximately USD10 to USD13 per share. Given its current trajectory, they may scale up and potentially grow 5 to 10 times within the next 5 years.

The key metrics to focus on are ETWO’s retention rate going forward, capability to expand its customer base (currently around 1000+ customers) and, competence in cross-selling products within its customer base.

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.

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