SaaS Business On A Solid Growth, Online Marketing Specialist iClick Makes Steady Progress

iClick (ICLK. US), an online precision marketing services provider, has tapped into the SaaS space three years ago, forming a development strategy based on two core businesses: marketing solutions and enterprise solutions. The company offers advertisement services covering the whole process of marketing for its clients, and is hailed as a dark horse in the territory of SaaS.

Click is an undisputed leader in the online marketing industry in China. According to a report by Frost & Sullivan in 2018, Click was the largest independent marketing technology company in China at that time. In the same year, it launched the new enterprise solutions sector in a bid to venture into the SaaS domain. The move not only expanded the company's revenue channel but also further improved its business services.

Since 2021, iClick's total revenue has been on a rise trend quarter by quarter. In its latest fiscal report, the company hit a record high revenue of US$86.82 million, up 26% year-on-year, compared to US$66.6 million in the first quarter and US$78.0 million in the second quarter. In addition, the company expects its full-year revenue to reach US$318 million to US$338 million, which means that its revenue in the fourth quarter will likely exceed US$100 million for the first time, up to US$108.6 million.

iClick's high final quarter earnings expectations show the company's confidence. By comparing the company's performance in previous years, it can be concluded that the revenue share of the fourth quarter is the biggest along the whole year as many enterprises or brands have major promotional events at the end of the year, thus driving the overall market demand for marketing. In this regard, iClick is projected to achieve $100 million in revenue for the first time in the fourth quarter of this year.

But this year China has brought new regulations from fintech to education to games, wreaking havoc on a slew of Chinese internet and other companies. For this reason, many companies have cut off their marketing budgets as the regulatory tightening and other uncertainties become more frequent. This also gives a big blow to the advertisement sector of major players across the entire industry. ByteDance, for instance, said its domestic advertisement revenue stopped growth for the first time in seven years as the growth of the company’s blockbusters Douyin and Toutiao was not as vibrant as usual.

The marketing solutions business currently still contributes the vast majority of revenue to iClick, which reported US$67 million in the third quarter, but only increased 11% year-over-year, down 11 percentage points from the previous quarter, showing the industry’s waning trend,

On the company's earnings call, management also blamed the weak advertisement sector on the changing regulatory environment and highlighted macroeconomic uncertainty.

The outcome of all the glumness was a selloff that saw iClick’s shares tumble around 6.5% the day it reported the results. The stock sagged further over the following days to well below $5.5.

Great potential

Despite the company facing challenging circumstances, it continues to insist that the company is upbeat about its long-term growth.

The bulk of iClick's revenue comes from its marketing solutions business, a sector that focuses on garnering new traffic to clients and helping them attract potential new users. The sector achieved 11% year-over-year growth in the third quarter, accounting for more than 75% of total revenue, though bleak scenario facing the industry.

Another bright spot is manifested in the performance of its enterprise solutions sector. On the earnings call, the company's CEO said, “iClick achieved the eighth consecutive quarter of record revenues in our Enterprise Solutions business, which grew 131% year-over-year to US$20.26 million as demand for private domain traffic and online and offline integrations remained robust.”

The enterprise solutions sector was launched by iClick in 2018 to foray into the SaaS field. It centers on while-sales and post-sales services of marketing plannings, aiming to help clients improve user retention and conversion rate. Together with the marketing solutions section, the two businesses form a marketing system that offers customers complete and integrated marketing services.

According to the earnings report, the impressive performance of enterprise solutions in the third quarter has lifted its revenue share to 23% this year from 13% in the same period last year. On the earnings call, the management also suggested that the company would put more resources into R&D and refine the company's SaaS business module to improve its presence in the Chinese market. The company expects revenue from this business to reach US$16.8-US$17.6 in the fourth quarter.

The company’s previous extensive experience in online marketing and a large number of clients will unsurprisingly boost the enterprise solutions sector. For investors, the company now trades at a price-to-earnings (P/E) ratio of just 1.8, which is cheap no matter how you slice it; while its peers Kingdee’s (00268. HK) trades at 8.9 times and Weimob trades at 6.8 times.

Apart from working hard to develop its enterprise solutions sector, the company has also been buying back shares to support its stock. The company has completed stock repurchase of an aggregate of $74 million as of September 30, 2021, according to the latest financial report.

There is no denying iClick’s same-weight effort in the marketing solutions sector and enterprise solutions sector makes it a formidable player in the Chinese online marketing market. It has built connections with 3,000 more advertisers that cover multiple sectors such as smartphones, video, social, and search engines. Yet the company’s market cap stances only $500 million, far less than the $10.3 billion of Kingdee and much lower than the $2.96 billion of Weimob.