Decided to do a bit of DD, by no means as holistic as the likes of @jcksmith850 is pulling out the bag but it’s a place to start;
What do they do?
Operator of a cloud-based banking platform designed to deliver complete banking services. The company’s banking platform integrates directly with a bank’s core accounting system and encompasses customer relationship management (CRM), loan origination, enterprise content management and data analytics among others, enabling financial institutions to meet regulatory compliance, drive profitability and optimize operational transparency.
Their Product
Built as a single, multi-tenant SaaS (software-as-a-service) platform, the nCino Bank Operating System is an end-to-end digital banking platform that is flexible, scalable and designed to help reduce costs by improving employee efficiency and productivity. It aims to transform the way financial institutions operate, go to market and interact with their clients, while delivering measurable return on investment through innovations in Commercial and Retail Banking, Portfolio Analytics and Deposit Account Opening, creating a seamless user experience and simultaneously creating internal and regulatory transparency via their comprehensive warehousing, analytics and reporting suite.
Fundamental elements of the nCino Bank Operating System are built on the Salesforce platform, which allows them to focus their product development efforts on building deep vertical functionality specifically for banks and credit unions while leveraging the Salesforce Platform’s global infrastructure, reliability and scalability.
The Company
Founded: 2012
Employees: 900
CEO: Pierre Naudé (Co-founder)
Industry: Fintech
Mission: To transform financial services through innovation, reputation and speed.
Their client base boasts 1,100+ financial institutions including Bank of America, Santander, Barclays, Allied Irish Bank, Yorkshire Building Society and Truist Bank.
161 of these pay >$100k per year
21 of these pay >$1m per year
The Figures
To date nCino have received $213.2m in funding and they hope to achieve further capital of$182.4m through the IPO.
nCino derive their revenues from;
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Subscriptions, consisting principally of fees from customers for Operating System access as well as maintenance and support services that are offered under non-cancellable multi-year contracts, which typically range from three to five years.
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Professional services fees, such as implementation and configuration assistance, training and advisory services.
Their financial history is rather limited but the last three years are captured as follows;
For fiscal 2020, 2019 and 2018, they had subscription revenue retention rates of 147%, 163% and 188%, respectively.
The Landscape
With an addressable market of $10b, if they play it right nCino have a dearth of opportunity for expansion, especially in Financial Services where turnover is frequent at all levels of the business and good word of mouth regarding efficient OSs can spread from firm to firm.
nCino have deployed their software to 10 countries, but only 8% of their business sits outside the US. That’s a massive market yet to be tapped. They have also recently entered into a joint venture with K. K. to facilitate entry to Japan.
As far as peers go, it’s a mix of well-established ‘old dogs’ such as Oracle FLEXCUBE and younger companies making the same moves in other jurisdictions and far less funding;
- Mambu (Berlin), $42m
- Oradian (Zagreb), $1.8m
- Leveris (Dublin), unable to source
As with most fintech operations COVID-19 has barely made an impact. Financial institutions have barely slowed down and have been one of the main sectors whereby working from home was embraced fully.
In 2018, nCino ranked 24th in Forbes Cloud 100 List, an annual ranking of private cloud-computing companies in the tech sector.
In 2019 they made it to 20th place, the second-highest of any fintech ranked companies (after Plaid).
What nCino have over their competitors
- First mover in this sector. Experience. Reputation. Established in multiple geographies
- Single SaaS platform
- In the business of fundamentally changing the way financial institutions operate
- Backed by Salesforce, who are one of their three largest investors
Growth Opportunities
- Expansion, both to new clients but also within and across existing
- Large underserved market of institutions still using legacy point products
- Ex-USA market vastly untapped
- Strengthening and extending product functionality
Risks and Downside
- Limited financial history, difficult to predict future results. A history of operating losses
- Cloud banking market may not grow as quickly as anticipated
- Not disruptive enough. Lots of peers doing the same or similar
- Sustaining current revenue growth rate could prove a challenge. Quarterly results might fluctuate
- Fundamental elements of the nCino Bank Operating System are built on the Salesforce Platform. Reliant on agreement with Salesforce to provide solution to their customers
- Because nCino recognize subscription revenues over the term of a contract, downturns or upturns in business may not be reflected in results of operations until future periods
- Any downturn or decrease in technology spend in the financial services industry
The IPO
Ticker: NCNO
Date: 15 July 2020
Price Range: $22-24 per share
Shares: 72.6m
Target: $182.4m
Implied Market Cap: $4.6b
Final Thoughts
While I recognise that nCino aren’t changing the cloud banking game (it’s tough to get disruptive in this sector I think) there is massive scope for efficiencies across the industry and what they are doing is user friendly, intuitive and easy on the eye.
What I didn’t like seeing was net loss going up with revenue; not a nice trend. But there are plenty of companies out there that ran a negative for years before seeing a silver lining. And with some humungous players in the banking world up for grabs, a big fish could send these guys to the next level.
63.3% of common stock is held by their three largest stockholders. I’m not sure if that will have any bearing next week but I strongly doubt these guys will price at $24 when we get our chance to buy in. Not likely to be as extreme as Lemonade was last week but it wouldn’t be unreasonable to expect an opening between $30-40.
Likely to have a lot of energy at first then peter out for a while. I can see this being a slow burner on the market, a real long term play, but I can also see an initial sharp incline upon float. Their reputation seems to precede their bottom line.
There’s a strong view that US stocks and Tech stocks in particular are overvalued currently and that this could be hit with a second crash or a correction at any time. One upshot is that the timing of nCino’s IPO might mean that they are largely unaffected by any counter-reaction the market might have as they are, by virtue of how young they are in the market not overvalued. That is unless you think the implied market cap is already too strong. $4.6b?.. possibly.
Personally I’m undecided but that’s nothing to do with the company and all to do with my own evolving ethos. I’ve spent the last few weeks drastically downsizing my folio, stripping out the chaff and condensing down to a smaller number of companies I really believe will pioneer in their respective sectors. I’m just not sure nCino fit that bill. More thinking to do…
Sources
- nCino.com
- nCino demo
- SEC S-1 filing
- Owler
- Asset Match
- Crunchbase
- Pitchbook
- Growjo
- Forbes