Shares of Austin, Tex.-based SailPoint SAIL +5.5% Technologies have risen about 149% in the last year — outpacing the S&P 500 which increased some 39% during the period.
People working from home created new security risks for their employers — which boosted demand for SailPoint’s Identity Security services.
Is the tailwind that propelled its shares likely to keep SailPoint’s stock outpacing the market? Here are three reasons to make a bet on its stock:
- Large, growing market
- Industry-beating growth rate
- Ability to respond quickly to new opportunities
SailPoint’s Most Recent Results
SailPoint — which helps companies govern user access to systems and data on their premises or in cloud or mobile applications — by supplying identity governance software. SailPoint competes worldwide, most of of its revenue comes from the U.S., and it is transitioning from licensing its service to offering it as a service.
SailPoint grew briskly in 2020. Jason Ream, CFO said that the company’s total revenue grew 27% to some $365 million — its fourth quarter 2020 revenue reached $103 million — a 16% increase and $8 million above the top end of its guidance, according to SailPoint’s Q4 Earnings Conference Call Transcript.
Subscription growth was far faster than its licensing’s during the quarter. As Ream said, “subscription revenue of $56 million, representing 38% growth year-over-year and $3 million above our previous guidance, . This outperformance was driven by strong sales performance and by better than expected retention of our SaaS and maintenance customers.”
SailPoint expects its total revenues to grow more slowly — at 12% above the middle of its 2021 guidance. Ream noted that SailPoint’s “current expectations for total revenue for the full year of 2021 are in the range of $404 million to $412 million.”
Licensing and other revenue will slow down the company. How so? He said that subscription revenue would rise at a 30% to 32% growth rate — in the range of $256 million to $260 million and license revenue will be in the range of $100 to $104 million — the midpoint of which is down 19% from 2020’s $121 million, according to SailPoint’s 10K.
SailPoint expects considerable growth in its annual recurring revenue (ARR). Ream expects 2021 ARR to increase between 33% and 35% to $333 million to $339 million from $251 million in 2020.
Simply put, if these trends continue, SailPoint customers will continue to switch from licensing to SaaS contracts which will ultimately result in higher top line growth.
Large, growing market
SailPoint competes in a large fast-growing market. The Global Identity and Access Management Market is expected to grow at a 13.2% compound annual rate from $11.8 billion in 2019 to about $29.8 billion in 2027, according to Verified Market Research.
Industry-beating growth rate
Having grown its top line at 27% in 2020, SailPoint is growing faster than the industry.
SailPoint’s customers give it high marks. According Gartner Peer Insights, 125 customers gave its IdentityIQ — a tool to prevent unauthorized users from accessing information — 4.5 out of five stars. This score is slightly below the 4.6/5.0 score that 79 customer awarded Okta’s product, according to Gartner.
SailPoint expects its revenues growth to remain high. In a March 2 interview, CEO Mark McClain told me, “SailPoint grew revenues fast. We are making a transition from perpetual licenses to software as a service. We enjoyed 27% growth without the shift — it would be five points higher because SaaS has a dampening affect on revenue.”
McClain said that SailPoint is positioned to “build upon [2020’s] strong market momentum.” According to the company’s Q4 earnings call transcript, he noted that SailPoint is tailoring its SaaS platform for large enterprises; “reorienting itself towards subscription-based pricing” for all its customers; and adding “adjacent” capabilities — for example through its February 2021 acquisition of Intello, a SaaS-management platform.
Ability to respond effectively to new opportunities
A CEO’s strategic mindset has a huge effect on how fast it grows — about which I wrote in my new book, Goliath Strikes Back.
SailPoint decided not to slash staff when the pandemic hit last spring. “In later 2019 through the first quarter of 2020, Covid hit, but life didn’t end. We had to decide how to move forward. We had a conversation in the spring of 2020. If this is was reminiscent of what happened in 2007/2008 financial crisis we would have laid off 50% of the staff. But we decided not to do that. Our strategy was sound and we picked up momentum as peers pulled back,” McClain told me.
Making better decisions faster
One need look no further than Microsoft’s Satya Nadella to see that principle in action. As I wrote in January 2020, while the company stumbled under Bill Gates’ successor, Steve Ballmer, at the time, Nadella’s six years at Microsoft’s helm had propelled its stock up 90% — more than three times higher than it stood when Gates left the helm.
McClain admires Nadella’s management style and draws inspiration from him as he aims to keep SailPoint growing fast.
He has had a close up view of how big companies can slow down their decision-making — which I described to him as their Observe, Orient, Decide, and Act (OODA) loops.
As he said, “Why do big companies have slower OODA loops? They slow down at D. I admire Nadella and how he changed Microsoft’s decision cycle. It is the Decision part that kills [many big companies]. Who makes the decision? How many people have to sign off? How many people can say no? I worked at IBM — where it was very top down and people could ‘non-concur’— and HP where collaboration was king based on how Will and Dave worked. This leads to people saying I need more data I need more analysis before making decisions.”
McClain offered his view on why startups can make decisions more quickly. “Small companies make decisions with some data and a lot of intuition. In a bigger company you get people who want lots of data. You can’t do everything with your gut. You need 70% data, 30% gut. People are afraid of approving a decision, then it goes wrong, and the higher up gets the blame,” he said.
Empowering those closest to the market
SailPoint squares the circle between big bureaucratic companies and startups by delegating many decisions. As he explained, “We are a 15 year old company with 1,500 people. Our OODA loop operates on the principle that you trust in the fundamental goodness of your people and delegate — driving down the decisions to the people closest to the action.”
He admires how Southwest does this. “If you fly on Southwest and other airlines you can see how Southwest employees can make decisions at the gate — when something goes wrong the organization is empowered to fix it. [We want to avoid the big company CYA problem] in which an executive will pay if one of their people makes a bad decision,” noted McClain.
To achieve the right level of delegation, SailPoint uses “guardrails.” “We have two guardrails for our ‘white collar’ employees. Offer them enough clarity of vision and don’t micromanage — telling them exactly what to do.”
Inventing the future
SailPoint also takes affirmative steps to encourage its people to find the best ideas. To that end, he encourages people close to the market to bring up problems — rather than to stay quiet in meetings. He also pushes new people to being up new ideas and he listens to people on the line who have expertise and market insights that the company needs.
SailPoint is bringing in new people who can use the latest technologies to make its customers’ lives better. As McClain said, “We are hiring people with AI and machine learning expertise. We look at shifts in our customers’ infrastructure. We create augmented intelligence that blends machine and human insights. We are seeing a new identity that we manage — software bots. For example, software bots help with a bank’s internal evaluation of a loan. These bots are a new identity and hackers could exploit them as a new attack surface. We have to think about how a hacker might try to take over a bot.”
With tech stocks dropping as bond yields rise, the market is offering long-term investors an entry point into this market leader.