KeyBanc analyst Josh Beck noted that rates on the 10-year fell below 1% before quickly expanding by ~2%, which coincided with a dramatic digital adoption surge, triggering a rapid rise and subsequent fall for high-growth, long-duration tech assets.
He noticed rising capital costs may lead to a strategic re-evaluation towards what they refer to as "Lean Growth," a new era featuring a more balanced approach across growth and profitability, marking a pivot from a heavier growth bias (both organic and M&A) in prior years.
He ran a profitability path deep dive assessing duration to 20% operating margins over ~3-4 years to better evaluate the implications of a Lean Growth era. He ran an analysis on net cash coverage (~20% of market cap).
He also re-based his "LT rule of 40" DCF analysis (~50 on average) to contemplate higher rates (LDD WACC) and refined SBC-related expenses (mid-teens), which generally moves price targets lower across most of the group.
As a result, he refreshed some of his preferred commerce/back office ideas into distinct categories across untapped platform potential (Bill.com Holdings, Inc BILL, Shopify Inc SHOP), execution-driven (Global-E Online Ltd GLBE, Lightspeed Commerce Inc LSPD), and relatively defensive (AvidXchange Holdings, Inc AVDX, EngageSmart, Inc ESMT) themes.
While retaining his positive bias on product leadership and management strategy, he downgraded Blend Labs, Inc BLND and VTEX VTEX to Sector Weight to reflect rate/inflationary headwinds across the mortgage and LATAM e-Com end markets.
He also adjusted estimates for BTRS Holdings Inc BTRS, Blend Labs, and VTEX.
Price Action: BLND shares traded higher by 6.57% at $2.88 on the last check Thursday.
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