This is not investment advice. Do your own research before taking a position in any of the securities mentioned in the post below. The author may hold positions in any of the securities mentioned.
An intro for those who have never used Nitro
Since I am a big fan of Australian-founded tech, there is a lot to love about the Nitro business.
It operates in a space with a huge addressable market ($28bn according to Nitro) and has grown offshore
It has a price advantage vs. incumbents (Adobe and Docusign)
There are user tailwinds - we all WFH & business have accepted e-signatures now
They have a partner channel that helps them quickly scale up customer acquisition
Offsetting this - priced fully at 11x sales with 4-5yrs until break-even - there is plenty of risks. However, let me explain what I consider to be the pros/cons of this company.
Comparing Nitro with Docusign/Adobe
Nitro is tiny (A$730m; US$535m) compared to Adobe (US$287bn) and Docusign (US$52bn) Sure, these companies have other service offerings however a lot of this huge difference is due to these guys "getting there first."
When comparing Nitro to DocuSign/Adobe, let's not forget; the first mover takes most
In terms of why people use Nitro compared to the incumbents; the primary reasons revolve around a) price, b) features c) it integrates with all cloud providers (e.g. Google Drive) and d) fewer bugs due to using newer/cleaner tech.
The main complaints against Nitro are due to it being cash-strapped, they have not afforded big customer support teams which big companies may need if your tech glitches. The full reviews can be seen here (Docusign vs. Nitro and Adobe vs. Nitro)
What kind of growth could you expect for Nitro?
Nitro probably won't steal market share off Docusign: Brokers generally assume Nitro will only grow marginally faster (25% vs. 20%) DocuSign is the dominant product. Either way - 25% is not bad growth
Subscription margins are probably destined to be weaker: Nitro’s pricing strategy and need for customer acquisition mean that even when they break even, their margins are likely to be weaker vs. Docusign
I am assuming high CAC: Currently, the sales and marketing costs for Nitro are very high. It takes 2-2.5yrs for a customer to break even for them and basically they make 4x money over the life of the contract. Put simply - it costs them $50 to acquire a customer who pays $25 per year for 8 years.
In conclusion - yes Nitro at 11x sales is much "cheaper" than DocuSign (29x) but their need for marketing spend is greater and their margins are lower. Given the size of this market, they will of course grow rapidly, however, I do not think they will make big in-roads on DocuSign and shareholders will be diluted along the way (c.$20m in cash for 2024 break-even).
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