SendGrid's Growth Story Has KeyBanc Feeling Bullish

SendGrid Inc SEND, a customer communication platform for transactional and marketing email, impressed KeyBanc Capital Markets with what an analyst said are its strong leadership, potential upside levers to growth in 2018 and 2019, disciplined and profitable model and healthy industry conditions.

The IPO quiet period for the shares expires Monday.

The Analyst

KeyBanc Capital Markets analyst Brent Bracelin initiated coverage of the shares of SendGrid with an Outperform and $26 price target.

The Thesis

SendGrid has built a cloud-based email delivery platform and boasts of a customer base of 58,000 that includes the likes of Airbnb, eBay Inc EBAY, Yelp Inc YELP, Intuit Inc. INTU and Spotify, Bracelin said in a Sunday note. (See Bracelin's track record here.)

The company's unique business model — with a net dollar retention rate of 116 percent — supported high growth and profitability, the analyst said. Bracelin said he expects revenues to rise from $42.8 million in 2014 to $110 million in 2017, translating to a CAGR of 37 percent.

" ... SendGrid has also generated positive EBITDA and FCF YTD alongside an improving gross margin of 74 percent," Bracelin said.

SendGrid has multiple avenues to further expand into adjacent segments of the broader $11 billion email total addressable market, according to Keybanc. The firm projects expansion potential through both internal development and complementary M&A.

Despite the 34-percent gain notched by the shares of SendGrid from its $16 IPO offer price, compared to a mere 1 percent rise in the NASDAQ 100 Index in the same period, KeyBanc models a favorable risk/reward profile for the company looking out to 2019.