ChannelAdvisor claims it "empowers retailers to sell more." Founded in 2001, the company is a provider of cloud-based solutions deployed by retailers and manufacturers to integrate, manage and optimize their merchandise sales across various online channels.
In early May, ChannelAdvisor delivered strong results for the first quarter, with revenue up nearly 30 percent — including core revenue growth of 32 percent, the fastest organic growth in seven years — and record bookings. But investors weren’t impressed: the stock fell as much as 25 percent over the three sessions following the report.
Organizations use the ChannelAdvisor platform to do everything from manage their product listings and check inventory availability to optimize price changes and select the best search terms across multiple comparison-shopping sites, e-commerce marketplaces and search engines.
The company supports roughly 150 shopping engines, 35 marketplaces worldwide and all of the major search engines.
According to CEO and cofounder Scot Wingo, customers usually come to ChannelAdvisor with an acute need to solve a specific pain point across their e-commerce businesses. They almost always want to automate and expand online, then optimize return on investment across the various channels.
E-commerce is growing. Is ChannelAdvisor poised to capitalize on it?
How It Makes Money
ChannelAdvisor uses a gross merchandise value (GMV) model, so subscription fees are structured to include both a fixed charge and a variable component. That allows the company to participate in a share of its customers’ GMV processed on the platform. For example, a typical customer’s monthly subscription fee might be $1,000 ($12,000 paid up front) and include a specified level of GMV coverage; for GMV above that level, there are tiered overage fees averaging 1.5 percent.
Last year, GMV processed on the company’s platform rose 26 percent to $4.4 billion and variable subscription fees accounted for 33 percent of total revenue. In the first quarter, fixed subscription fees represented 73 percent of total revenue (up from 65 percent in the year-ago period), as more customers traded up to higher GMV levels to better match their increased e-commerce revenue.
With management estimating the total addressable market at roughly 100,000 organizations worldwide, ChannelAdvisor’s current penetration rate is just 2.5 percent.