Apptio Attempting To Leverage Its 'First Mover' Advantage

Barclays started coverage of Apptio Inc APTI with an Equal-Weight rating and $23 price target, saying the company has attractive growth opportunities with its first mover advantage in the technology business management space.

However, the valuation keeps the brokerage on the sidelines as it awaits a better entry point. Since the IPO, Apptio shares have gained 28 percent above the $16 deal pricing and are now trading at 4.0x 2017 estimated EV/Sales. Barclays said the price target of $23 represents 4.5x 2017 estimated EV/Sales, representing a 28 percent discount to its peer group average.

“We believe the discount is justified given the company's growth profile. As Apptio demonstrates success increasing its customer base and accelerating revenue growth, we may have reason to consider the greater upside and adjust our target multiple as warranted,” analyst Raimo Lenschow wrote in a note.

That said, the analyst is positive on the company’s fundamentals as it has delivered solid double-digit revenue growth of 21 percent. In addition, Lenschow believes the company faces limited competition and operates in an underpenetrated $6 billion total available market (TAM), which provides plenty of growth opportunities.

Meanwhile, the company is poised for revenue and margin expansion with the mix increasingly shifting towards the faster growing subscription business.

“With over 40% penetration of the Fortune 100, including names such as Microsoft and Boeing, Apptio demonstrates scalability and paves the way for expansion into the Global 10,000. The question remains whether it will experience comparable success with these companies as they have smaller IT budgets,” Lenschow highlighted.

At time of writing, shares of Apptio were down 0.73 percent to $20.37.