Put Bazaarvoice on Your Shopping List

 | Jun 01, 2012 | 3:00 PM EDT  | Comments
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One of the more bizarre developments in online retailing is the opportunity customers are given to their views of a product. Of course, every retailer loves to see customers fawn over their latest gewgaws and customer service, yet there are plenty of online forums right on a chain store's website in which customers express scorn, or worse.

Well, there's no going back to the old days of brushing troubles under the rug. And that is where Bazaarvoice (BV) fits into the picture. The helps retailers create online social communities so they may connect and drive improvements in marketing, sales, customer service, and product development.

Bazaarvoice executives say they believe that customers want to share shopping experiences and opinions, and that if retailers listen carefully, they'll change the way they do business. The company's primary strategy is to help retailers realize and achieve this new outlook on the way they communicate with their customers.

Chief Executive Brett Hurt co-founded the Austin, Tex., company in 2005 with Brant Barton, who is now general manager of media solutions at the firm. Previously, Hurt founded two other firms, an online retailer and a web software consulting firm. Both were core experiences that serve him well in bridging the gap between retail and emerging technology.

The company's software-as-a-service (SaaS) structure provides an easy implementation for clients, allowing them to manage the entire software platform from any web browser. At the heart of that platform is its Ratings & Reviews segment, which allows clients to capture, manage, and display consumer reviews on their websites and mobile applications.

But the services don't end there, as Bazaarvoice essentially allows its clients to track, optimize, and distribute any content across the web that mentions its products, services, or brands. This is invaluable information that contains an almost endless number of ways that retailers can exploit the data to sell and prospect better.

In what's being dubbed as "social commerce," the company is capitalizing on the continual shift of traditional marketing budgets from print and television advertising to the online space. The company commissioned a third-party market research firm to size up the addressable market based on online marketing spending in the U.S.

The results showed the market growing at greater than 37% a year through 2014, representing a $3 billion opportunity. Considering estimated 2012 revenues for Bazaarvoice are in the $100 million range, that's tremendous.

The client base of nearly 800 is diverse, including Best Buy (BBY), Wal-Mart (WMT), Expedia (EXPE), and American Express (AXP). It counts more than 80 Fortune 500 firms as clients, and most analysts pin Bazaarvoice as the market leader, especially after its most recent acquisition.

Just a few days ago, the company reached a deal to purchase one of its primary competitors, PowerReviews. The $152 million acquisition will allow Bazaarvoice to continue to expand, adding significant clients including Gap (GPS), Staples (SPLS), and Toys R Us. Subscription revenue accounts for over 95% of total revenues, as the company bills upfront largely on an annual basis.

The firm is set to announce its fourth-quarter results in early June, but has already released excellent preliminary results. The management team expects full-year revenues of about $106 million, a 64% increase from a year ago. Additionally, it expects 2013 revenue growth to come in at north of +30%.

Bazaarvoice represents a classic emerging growth story, with a first-to-market advantage in a new field that is expected to experience exponential growth over the next several years. An ideal situation like this doesn't come around often, so naturally there was a lot of initial interest when shares went public in February.

The shares priced at $12, then surged as high as $21 in mid-April. They now trade in the $17 range, giving the company a market cap of just under $1 billion. It doesn't have any direct peers that trade publicly, but when compared to related firms such as Salesforce.com (CRM), and NetSuite (N), it trades at a premium.

Research firm Piper Jaffray estimates Bazaarvoice is already five times larger than its next closest competitor, and many advantages accrue to market leaders. Put this one on your shopping list for a summer downturn.

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