August SMB News Roundup

Here’s a look at the SMB tech companies making news this past month.

H&R Block — Soon to be Acquired?

H&R Block continues to see challenges operationally. They reported losses of $0.55 a share — missing estimates on both EPS and revenues. The stock price similarly has taken a beating, down 36% year to date. One of the major challenges H&R Block face includes going up head to head against Intuit — losing significant market share to TurboTax (an Intuit product). YoY, Turbo Tax has increased unit sales by 15% for its online product, and 12% for its software. Meanwhile, H&R Block has saw client counts declining.

There are internal rumblings about H&R Block putting itself up for sale. They have engaged Goldman Sachs to advise them on options. Insiders close to the deal say management is looking for $35 per share, a 38% premium to its share price on August 31st. While H&R Block has been a household name during tax season, it appears that less and less people are willing to head to their storefronts to have their taxes filed, opting instead for the comfort of filing online.

Intuit Owning SMB Market

With H&R Block suffering, Intuit has seen continued growth in its business. The company reported a 12% increase in revenue in fiscal 2016, to $4.7B. QuickBooks Online subscribers reached 1.5M paid users, up 41% over fiscal 2015. Consumer tax revenue is also up 10% (under the TurboTax banner). Internationally, outside of the US, Quickbooks grew 45% YoY. Intuit stock has also grown 32% since this time last year.

The largest area of growth for Intuit continues to be SMBs, with its small business online ecosystem revenue up 25% in fiscal 2016. Intuit is looking to expand its online Quickbooks business tool into a platform offering machine learning based advice and services. Details on how exactly Intuit plans to get there will be announced in October at Intuit’s Quickbooks Connect conference.

Shopify — The Northern Star

Shopify continues to be a gem in the Canadian tech ecosystem, keeping its upward ascent in both stock price and earnings. Earlier this month, Shopify released its second quarter results. Revenue has grown 93% YoY and reached 300,000 customers. Stocks rallied after Shopify adjusted its 2016 revenue forecast from $330M up to $361M. Shopify also raised $246M CAD in a secondary share offering.

Square — Moving Upmarket Through Partnerships

Q2 results from Square looks extremely positive, with revenue up 41% YoY to $439M, and gross payment volume (GPV) up 42% to $12.5B. Markets reacted to this news with a 9% rally after the earnings call.

Specifically, Square has seen a lot of success with larger sellers — growing large sellers as a portion of gross payment volume (GPV) up to 14%, doubling its share from 2014. GPV from larger sellers also grew 61% YoY, which was achieved through enhancing the ecosystem towards these sellers.

On August 29th, Square announced partnerships with Vend and TouchBistro to make Square even more appealing to larger businesses. Vend — with more than 15,000 retailers — and TouchBistro have announced that they will let their customers use Square’s payments and business management solutions on top of their own point-of-sale systems. This is in line with Square’s continued foray upmarket to target customers with higher GPV.

Endurance International Acquires AppMachine

Endurance International has announced its acquisition of AppMachine — a mobile development platform. AppMachine helps small companies build apps and mobile websites quickly and efficiently. Previously, Endurance was an investor in AppMachine, funding their $15.2M round back in February 2015. On August 23rd, Endurance announced that it completed its acquisition of AppMachine, which will result in enhancements to Endurance’s offerings by allowing faster product development and integration within the Endurance ecosystem. The aim of Endurance is to have AppMachine’s mobile team to continue to build SMB oriented tools to grow the Endurance suite of solutions.

Carbonite Raking It In On SMBs

The purchase of EVault has been a large boon to Carbonite’s business. Their SMB business grew 150% YoY in Q2 2016. Q2 2016 revenue was up 57% to $53.4M, with net income increasing into the black ($1.2M in net income).

Company executives are all in on the SMB focus area — calling it Carbonite’s “new focal point.” In December 2015, Carbonite scooped up EVault, a cloud backup service for small and mid-sized businesses for a total of $14M in cash. The purchase helped round out Carbonite’s product offering to include disaster recovery as a service (DRaaS). Carbonite also notes that they are realizing synergies faster than expected with EVault, resulting a faster time to value.

Shoretel — Reviewing “Strategic Alternatives”

ShoreTel has seen flat growth in fiscal 2016 — $360.3M in revenue vs $360.7M in fiscal 2015. Despite its focus on growing hosted services, which is up 20% YoY, it has been unable to make up for loss in other revenues. The company has formed a committee to evaluate “strategic alternatives” including a sale, divestments, joint ventures, restructuring and partnerships. With a large number of traditional unified communications providers shifting their on-premise products to hosted solutions, the market is getting increasingly crowded, especially competing with other Over-the-top players already succeeding in the market.

At SurePath Capital Partners we help startups raise the capital needed to become market leaders. When the time is right, we help our clients achieve profitable, deliberate exit strategies. We only work with startups in the SaaS, e-commerce and marketplace segments. Across those segments we have a deep focus on companies serving the global SMB market. Say hello:info@surepathcapital.com

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