Trade Extensions Reports Good Results, Strong US Growth

We wrote yesterday about the forthcoming IPO for software firm Coupa. That is going to raise $75 million, based on a valuation of the firm of over $1 billion. That made us wonder how much a number of other software firms in our industry might be valued.

BravoSolution for instance, has revenues of a similar order of magnitude to Coupa, and (we believe) is profitable, unlike Coupa which made a loss of $46 million last year on their $86 million revenues according to the information released last week in advance of the IPO. Now BravoSolution has grown successfully in recent years but not at the stellar growth rate of Coupa; on the other hand, Coupa has yet to prove that it can actually make a profit (we suspect it will, but there is some uncertainty there).

Another firm that is much smaller, but has been growing steadily, with a great client base - and is also, we believe, comfortably profitable -  is Trade Extensions. The specialist in what we call market-informed sourcing (optimisation, advanced sourcing, whatever...) announced their latest figures recently. As a private firm, they don't tell us everything, including revenues, but we guess are around the 10 million mark - sterling or Euros, we'll leave that open!

But the headlines they did reveal were impressive. The revenue growth in the first half of 2006 was 9%, and the recent pattern of sales suggest full year growth will be more like 15%. And the rate of growth in the Americas is even better - 20% over the last year - and now over 40% of Trade Extensions revenue comes from US-based corporations.  Business from Europe-based companies contributes 58% of revenue with the remainder generated outside the Americas and Europe - so not much elsewhere, which does of course suggest the potential for further expansion.

"Trade Extensions continues to attract major new customers and it is also increasing sales among its existing users with five of its 20 largest customers showing greater than 50% growth in the last year" says the press release, and as we've commented before, their major customers are in general huge, household-name blue-chip businesses. Trade Extensions now generates 80% of its revenue from repeatable subscription licences - a few years ago, a good proportion came from consultancy, but a re-focusing on software brings greater revenue certainty and therefore would also make the firm more valuable in case of sale or float.

As their CEO, Garry Mansell, said, “The key to selling repeatable licences is enabling users to be self-sufficient and initiatives such as our TESS Academy has lead the market in teaching users how to run complex strategic sourcing projects and this is being reflected in our strong profitable growth.”

There's more to come next year - the firm is "rolling out its most comprehensive update to TESS, its sourcing and optimisation platform, which will further support its strategy to make users more self-sufficient by making the platform more intuitive and enabling users to carry out complex sourcing and optimisation projects with minimal, if any, Trade Extensions input".

We don't think there is an IPO on the cards, and revenues maybe aren't quite at the level to make the cost of doing that sensible. But if you ask me whether I'd rather put my money into Trade Extensions or Coupa, that would be a tough one! It depends on what the valuation would be naturally, but at a fair price we'd suggest that both those firms - and BravoSolution for that matter - are amongst the more attractive investment propositions in our industry.

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