Cloud Commerce: Executing a Roll-up Strategy in Cloud E-Commerce

REDONDO BEACH, CA / ACCESSWIRE / November 2, 2015 / Amazon.com Inc. (NASDAQ: AMZN), Alphabet Inc. (NASDAQ: GOOGL), and Microsoft Corp. (NASDAQ: MSFT) all topped their profit estimates during the third quarter, driven by the industry's accelerating transition from physical hardware to cloud computing. Atop these platforms, CloudCommerce Inc. (OTCQB: CLWD) is building custom digital commerce solutions for household names like Upper Deck, Active Ride Shop, HD Buttercup and more.

CloudCommerce focuses on enterprise professional services, leveraging the open-source Magento e-commerce platform and others to deliver high-quality cloud-driven commerce solutions to its customers. Management plans to expand their services to include additional cloud-driven commerce technologies over time.

In this report, we'll take a look at the company's focus on cloud-based e-commerce technologies and how management aims to use a roll-up acquisition strategy to build long-term value for shareholders and eventually become a "super competitor" in the space.

Piggybacking on Platforms

CloudCommerce's use of open platforms such as Magento is designed to piggyback on digital commerce technologies that have already gained traction in the market. Rather than spending money on building, marketing, and maintaining its own proprietary technology, the company can leverage existing technologies with established users, which enables them to focus on their professional services such as frontend design, back end integration, digital marketing and analytics and other higher margin activities.

The company's initial focus has been on Magento - a leading open source e-commerce platform, with an estimated 30% market share, according to aheadWorks. By comparison, Shopify Inc. (NYSE: SHOP) holds just 8.1% of the market with a $2.34 billion market capitalization. Quantcast data compiled by BuiltWith also suggests that 1.4% of the top 10,000 websites on the Internet are built with Magento – and the number is rising quickly (Figure 1).

Figure 1 - Prevalence of Magento in Top Websites - Source: BuiltWith & Quantcast

The company plans to expand its focus to multiple cloud-driven e-commerce and related technologies in order to service the widest customer base. For instance, Oracle Commerce Cloud, Hybris, Oro Commerce, and other popular e-commerce platforms that may become future targets.

Growth through Acquisitions

The problem facing many consultancies focused on helping clients build and maintain these e-commerce solutions is scale. It's not easy to build a strong $5-20 million company fueled by organic growth and a strong portfolio of customers, and once that scale is reached, there are still many competitors and no exit strategy for founders.

CloudCommerce aims to solve these problems by strategically acquiring profitable and well-managed companies with $5-20 million in revenue that have complementary services and technologies in order to create a "super competitor" in the space. In many ways, the strategy would mirror that of PFSweb Inc. (NASDAQ: PFSW), Perficient Inc. (NASDAQ: PRFT), or Cognizant Technology Solutions (NASDAQ: CTSH), which have all built large businesses through acquisitions.

In early October, the company announced its initial acquisition of Indaba Group - a rapidly growing provider of e-commerce and digital marketing services. The acquisition brings a profitable and growing operation into the fold, as well as an experienced leadership team that promises to help vet and execute other acquisitions in the space. Through acquisitions like these, the company hopes to eventually scale to the size of these larger competitors.

The company's publicly traded status provides capital to execute these transactions, as well as fuel growth after they are acquired. By leveraging its equity, the company also provides the founders of these companies with an exit strategy and/or the potential to multiply their wealth by joining in on the roll-up acquisition strategy. The company may also find it easier to attract and retain talent by using stock options and other unique incentives.

Looking Ahead

Cloud Commerce is uniquely positioned to build a sizable presence in the rapidly growing cloud-driven e-commerce and mobile commerce solutions space. With a new roll-up acquisition model and a transaction already completed, the company's management team has demonstrated its ability to execute and establish a path toward shareholder value creation. The company's post-acquisition financials and future announcements could provide near-term catalysts.

For more information, please visit the company website: http://www.cloudcommerce.com.

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Except for the historical information presented herein, matters discussed in this release contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Emerging Growth LLC is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. Emerging Growth LLC may from time to time have a position in the securities mentioned herein and may increase or decrease such positions without notice. For making specific investment decisions, readers should seek their own advice. Emerging Growth LLC may be compensated for its services in the form of cash-based compensation or equity securities in the companies it writes about, or a combination of the two. For full disclosure please visit: http://secfilings.com/Disclaimer.aspx.

SOURCE: Emerging Growth LLC