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Friday, 16 November 2012
blur Group one of the most exciting growth stories on the market, says N+1 Singer
blur Group (LON:BLUR) is currently one of the most exciting growth stories on the market, according to N+1 Singer’s respected tech analyst Tintin Stormont, who initiated coverage of the cloud-based trading platform this morning.
She predicts the group will break-even in the middle of next year and will post underlying earnings (EBITDA) of US$1 million in 2014 on sales of US$17 million.
A fairly conservative discounted cashflow calculation values the stock at 105 pence a share, she added.
At 2.30pm, blur was changing hands at 84 pence, valuing the business at just shy of £20 million a share.
“Strong execution from its entrepreneurial and dynamic management team should see the group deliver significant returns over the next few years,” Stormont said in a 42-page note on blur.
blur is a specialist offshoot of crowdsourcing. The word describes the very simple idea of taking a job or service and outsourcing it electronically to the person or firm willing to carry it out for the right price, and to deadline.
blur started offering creative services and quickly moved into marketing, media, artwork and technology. So it refers to its particular model as “expertsourcing”.
It makes its money in two ways – the first is exactly the same way as eBay does by charging commission (10 per cent of a brief’s value, or a minimum US$375).
The second and core revenue stream is project fees where the corporate buyer pays blur 100 per cent of the brief value and up to 80 per cent of this is passed onto the expert supplier.
Since start-up in 2007, it has created exchanges for eight separate markets, known in the trade as verticals, where buyers can purchase services.
The next push will be into accountancy and legal services.
Having started out with just 50 experts, the business now boasts 20,000 from sole traders through to large, established companies across 130 countries.
N+1’s Stormont considers blur’s a truly disruptive technology, which means it has the potential to transform the way people and businesses source their expert services.
Disruptive technologies, such as social media, can also create huge value for the early backers, as Facebook has shown.
“We believe blur Group will deliver a growth profile that few listed companies could match due to the disruptive effect of its technology platform on significant sections of the business services markets,” Stormont said.
She is predicting a compound annual growth rate of 118 per cent between 2012 and 2015, which means the enterprise value to sales multiple falls to 1.6 times from 3.1 times currently.
She is also forecasting that EBIT margins will stabilise at around 18 per cent.
“The group’s business model is fast evolving, characterised by significant growth in the number of briefs as well as in the average size of the brief,” Stormont told investors.
“Forecasting the exact trajectory of this growth is challenging, given the lack of comparables and the group’s relatively short trading history.
“As volumes increase, there could also be evolution in other metrics such as the percentage of briefs that convert to projects, the average length of time to complete a project, to name a couple, which would have an impact on financial forecasts.”
The tricky part of linking buyer and seller electronically is delivering a technology platform that is actually able to perform the function.
blur handles everything from creating the pitch and brief templates to making sure the cash is transferred from buyer to seller.
And as you’d expect of a company of this sophistication all this is done using cloud technology, which means the costs of running the business of this ilk are far lower than they might have been even five years ago.
The attraction to potential
users is that the platform allows customers such as the AA, Coral and Harvey Nichols to source services at a much cheaper rate than they might going to traditional bricks and mortar providers.
They are also able to turn the service on and off like a tap. blur’s model is not aimed at the large recurring projects that make up the vast majority of the income base of the large advertising, marketing and technology networks.
But it is ideal for 20 or so per cent of one-off jobs that require a faster turn-around or a more cost-effective budget.
The difference between the blur model and traditional crowdsourcing is the huge care taken with selection of the service providers, which are rigorously vetted by a specialist team before being able to pitch to potential customers.
The filtering continues during the pitch process where the system automatically draws up a long list of six people or companies that most closely adhered to the brief.
This is then manually whittled down to a short-list of three.
By this time the standard tends to be very high.
In doing this blur solves a problem that only the internet could, according to N+1 Singer’s Stormont.
“Crucial to the success of any exchange is achieving critical mass of participants in both the demand and supply side,” the analyst said.
“Buyers and sellers only join and stay on exchanges if they derive real benefits by doing so which would otherwise be difficult to achieve.
“We believe the group’s success is a testament to the exchange’s ability to simultaneously address the problems faced by both buyers and sellers.”
The scale of the potential market opportunity is significant, the analyst concludes.
She estimates the total relevant market to be in the order of US$680 billion.
If only 1 per cent goes online then this translates to a US$6.8 billion opportunity for blur and rivals.
At 5 per cent this a near US$35 billion marketplace for the online provision of services.
To give some context, between 5 and 12 per cent of all retail business is transacted online.
“As Amazon and eBay have fundamentally altered the way in which consumers purchase products, blur Group is looking to change the way companies procure business services,” Stormont said.
“The advertising, IT, legal, and accounting industries have been dominated by large, expensive, and increasingly inefficient service providers for years and there is a massive opportunity to address some of this market through the openness and efficiency offered by blur’s exchange.”