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Apigee: A Critical Company For The Digital Age

Summary

Apigee's software is critical to the digital economy, as well as app development and maintenance.

The company is growing quickly and approaching break-even cash flow.

Competition in the API arena is extensive, but Apigee excels at customer retention.

Investors win if the company continues to excel on its growth plans or is acquired by bigger players.

With a market cap of around $400 million, Apigee (NASDAQ:APIC) is a small-cap tech concern that went public a little over a year ago. The San Jose-based company supplies integration software to businesses that allows cloud-based devices to interact and connect with various apps and helps create an integrated network.

Source: Company Presentation

As an API management company, Apigee basically helps software connect with other software. Whether trying to find a free car on Uber, looking for cheap flights online, or making a payment on your bank's application, APIs are critical and continue to be more so as the digital economy accelerates. The company´s own survey found that 44% of app users would delete an app immediately if it didn't perform as expected (i.e. freezes, crashes, slow responses, etc.), which helps explain why APIs are so important and necessary to get right for their end users.

While there are a few competitors that specialize in API management and aid clients in becoming more productive in the digital economy, Apigee is one of the most utilized and offers investors a unique opportunity to profit from this area.

A brief look at the stock's chart shows the company has been on a tear since the beginning of the year, now working its way back to the original IPO price from 2015. Even though it's at 52-week highs, I hope to show investors that there is plenty of upside ahead.

Numbers

Most recent third-quarter results showed promising growth, as revenue increased 39% year over year to $18.6 million, gross profit increased 46% year over year to $16.4 million, and deferred revenue increased 33% to $50.9 million.

Steady march to positive operating cash flow (est. Q2 2017)

Source: Company Presentation

With operating cash flow of negative $3.5 million, Apigee is narrowing its losses and approaching its goal of break-even cash flow.

The company had 300 customers versus 114 in the same quarter last year, with expansion deals signed for 42 customers in the quarter. Renewal rate exceeded 90% for the fourth straight quarter, showing this revenue was sticky and Apigee's clients tend to stick with them. Full-year guidance was for $90.9 million to 92.4 million in revenue.

Impressive revenue growth: Gross billings increasing...


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