In a research report released yesterday, Canaccord equity analyst Richard Davis initiated coverage of Everbridge (NASDAQ: EVBG). Davis sees EVBG as a company with a good chance at delivering consistent growth and profitability to its shareholders, which might be part of the elite group of software companies in the future. As a result, Davis started coverage with a Buy rating on the stock and a $22 price target.
An important catalyst for the analyst initiating coverage on Everbridge is the growing market that the company competes in, which suggests the possibility for multi-year growth. In particular, Everbridge is a software company that provides critical communications and enterprise safety applications that allow its customers to keep people safe and businesses running during critical events. Because this company’s service is such an important component of its customer’s business, Davis noted that the company has been able to build a reference customer list that is essentially impenetrable from competitors.
Davis noted, that from a microeconomic standpoint, Everbridge set a reasonable price for its service which has quickly led to capturing network effects with scale. This attractive business model has made for efficient sales process and Davis believes it is a much better model that the high-price-point, low-volume-deal model of the past. The financial result of the this business model has given the company a dollar revenue retention of 116%.
Despite the fast-growing market and attractive business model, the analyst makes it clear that Everbridge is an investment, not a trade. Davis cautions against investors who are focusing on quarter-to-quarter results, as it will take several years of executing with its customers before they can see real growth. That said, if the company can continue to execute Davis believes Everbridge can join the ranks of companies such as SPS Commerce (NASDAQ: SPSC), Guidewire (NYSE: GWRE) and Tyler Technologies (NYSE: TYL) all of which have market capitalizations over $1 billion.
Shares of Everbridge have been trading slightly up from its initial public offering of $12 per share in September. If Davis’ price target is hit, this represents a 40% increase from Monday’s closing price of $15.68. Davis maintains his outlook for sustainable growth in the long term, as he noted:
Thinking longer term, we make the case in this report that EVBG should scale to material profits on revenues that should pass the $750M mark in 10-12 years, a period over which we believe the stock could deliver mid- to high-teens annual returns.
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