Mindbody Has 30% Upside: Pacific Crest

• The share price of MINDBODY Inc MB has appreciated 27.6 percent over the past six months, almost touching its 52 week high on November 23, at $18.
• Brendan Barnicle of Pacific Crest has reiterated an Overweight rating and price target of $19 on the company.
• Barnicle believes that the company’s payments business provides a tailwind for its core SaaS business and that the stock should trade at a premium to peers due to MINDBODY’s unique SaaS-plus-payment model.

According to the Pacific Crest report, “MINDBODY's payments business has extremely high gross-margins because it does not include interchange. Additionally, payments generates incremental revenue growth from the installed base.”

Analyst Brendan Barnicle explained that the company’s payments fulfilled a core need for customers, and that once a customer adopted the platform, “it would be operationally and technically difficult to replace MINDBODY, so payments customers are also stickier.”

Barnicle also believes that there are multiple avenues for sustained payments growth, given that payments revenue is driven by the company’s total payments volume and take rate.

In addition, there is meaningful leverage in MINDBODY’s payments business, “with potential upside to estimates if MINDBODY grows payments volume faster than expected. MINDBODY has a significant runway and has penetrated less than 1% of its global TAM,” Barnicle added.

The high margin payments revenue offers an incremental revenue stream, which is likely to shorten the company’s path to profitability, while increasing its long term margin profile and revenue from its installed based, as compared to an SaaS-only model.