" nCino, Inc is a great SaaS company boasting some of the largest banks in the world as customers. Their Operating System is able to help banks save significantly while enhancing the customer experience, but is this a stock to buy?"
By: Allan R Kirby
nCino SaaS Company focused on the financial industry
It's only been about 9 years since nCino was founded by a team of bankers and entrepreneurs in late 2011. The founders understood banking is a highly complex process that is inefficient, labor-intensive, and time-consuming but they also knew change was needed. As a result, the founders created a SaaS solution called the nCino Bank operating system which was built on the Salesforce platform. It is designed to help financial institutions increase profitability, efficiency, transparency, and regulatory compliance while also improving customer service. The platform is a powerful end to end system that provides three major functions:
Loan origination, from very complex commercial loans down to basic retail loans.
Account opening applications for any account type.
What sets nCino up for success is that its platform is scalable for financial institutions of all sizes and complexities around the world, including enterprise banks, regional and community banks, credit unions, and challenger banks. nCino's total current addressable market is about $10 Billion and they currently have over 1100 financial institutions as customers. With offices in Japan, Australia, Europe, Canada, and the United States nCino can help major banks transform into leaner and more customer-friendly organizations.
The Financial software company recently began trading on July 14 2020 under the NASDAQ symbol (NCNO), The IPO was very successful and they raised $250 million with the initial public offering, pricing shares at $31, above its estimated range of $28 to $29. It did however initially plan to price shares in a range of $22 to $24 but demand was strong. But by the end of the first day, the stock flew to $91.59 on the first day of trading, almost a triple and an increase that was close to 200%.
With the stock trading closer to the $80 range, is a stock worth buying? Let's take a look at its recent results and see if this is a great cloud stock to buy.
The quarterly results were good, revenues were up and the company made some great progress adding to their customer base. Unlike some cloud companies, nCino is not reliant on any one customer and their customer base runs deep.
Quarterly Results (Q2):
Revenues: Total revenues were $48.8 million, a 52% increase from $32.0 million in the second quarter of fiscal 2020. This is an increase of 52% year over year. Additionally, International revenues increased 103% year-over-year,
Subscription revenues: Were $39.4 million, up from $23.1 million one year ago, an increase of 70% year-over-year.
Loss from Operations: GAAP loss from operations was ($15.7) million compared to ($7.9) million in the second quarter of fiscal 2020.
Non-GAAP operating loss: was ($1.6) million compared to ($5.3) million in the second quarter of fiscal 2020.
Net Loss Attributable to nCino: GAAP net loss attributable to nCino was ($14.6) million compared to ($8.5) million in the second quarter of fiscal 2020.
Non-GAAP net loss attributable to nCino was ($581) thousand compared to ($5.8) million in the second quarter of fiscal 2020.
Net Loss Attributable to nCino per Share: GAAP net loss attributable to nCino was ($0.17) per share compared to ($0.11) per share in the second quarter of fiscal 2020.
Non-GAAP net loss attributable to nCino: was ($0.01) per share compared to ($0.08) per share in the second quarter of fiscal 2020.
Cash: Cash and cash equivalents were $388.2 million as of July 31, 2020.
There is a lot to like with Ncino, they have found a niche market within the financial industry that is in desperate need to cut expenses, improve profitability, and provide a better experience.
As highlighted by nCino "We believe the pandemic has dramatically demonstrated for financial institution executives that moving through a cloud environment can't just be part of their future roadmap. It's an immediate imperative. The size and prominence of the global financial institutions that are engaging with us today confirms that digital transformation in banking is happening and is accelerating. The strength of our pipeline is further evidence of this fact."
The truth is banks have been trying to develop their systems to compete with newer more nimble fintech. Unfortunately building their systems is capital expensive and they may not be fully successful in integrating their systems to create a better customer experience.
nCino's off the shelf operating system would save banks significant investment and could yield a high return in a shorter period, instead of taking years to develop their systems. But do not take it from me, looking at nCino's customer base, we can see their software is being adopted by major players.
What banks use nCino?
I compiled a shortlist of financial institutions that are clients of nCino. The list is impressive and shows the depth and breadth of its customer base. nCino client list Includes:
TD Bank, Banco Santander, Bank of America, Barclays, Bank of the West, Truist, Key Bank, Regions Bank, ConnectOne Bank, Navy Federal Credit Union, Valley National Bank, South State Bank, Black Hills Federal Credit Union, Bank of Tennessee, Secure Trust Bank, St. Louis Bank, Bank Independent, IBERIABANK, Banesco USA, CFCU Community Credit Union, WaFd Bank, Pacific Western Bank, Fulton Bank, Renasant Bank, United Community Bank, Eastern Bank, Customers Bank, Farm Credit West, Great Southern Bank, Noble Credit Union, First Federal Savings Bank, Kitsap Credit Union, Air Academy Federal Credit Union, Huntingdon Valley Bank, MountainCrest Credit Union, Gulf Coast Bank & Trust, Lone Star National Bank, Northwest Federal Credit Union, Franklin Synergy Bank, SAFE Credit Union, Oxford Bank, Wright-Patt Credit Union, On Tap Credit Union, Morris Bank, Mascoma Bank , Yourban.
"Does nCino (CNCO) have a dividend? No, CNCO is a great Software-as-a-Service (SaaS) cloud company with significant growth, it's not a dividend play."
With a strong customer base and rapid growth, this appears to be a company that is to be on a path to long-term growth and eventually profitability. We feel this company is just getting started and there are still a lot of opportunities.
Is nCino (CNCO) a good stock to buy?
When it comes to high flying cloud stocks like nCino, you need to be careful, these high growth stocks have sky-high valuations and any slow down will crush stocks like these. NCNO currently has a market valuation of $7.2 billion but its full-year revenue guidance is only $193 million. Granted the revenue amounts to year-over-year growth of 40%. its shares are still trading for an astounding 40 times 2021 revenue. This is a very rich valuation and one that I had some trouble with. However despite the valuation, I had no problems taking a small position, the story is just too compelling for me not to put a little on the table.
What we like about nCino
First, it's core platform is being widely adopted by some of the biggest banks in the world. Getting customers such as Bank of America, TD Bank, Banco Santander, and Barclays along with larger regional banks such as Key Bank and Regions tells me this platform could become widely adopted by many other banks. Secondly, banks that are using the platform are seeing significant savings, improved customer relations, as noted on their website
Customer can see up to 92% reduction in loan servicing costs
Streamline credit memo creation by up to 75%
Accelerate underwriting times by up to 91%
Advance efficiency with up to 77% reduction in loan cycle times
Up to 100% decrease in manual reporting
It's hard not to get impressed when you see these numbers but is it true? Well at Bryn Mawr Trust, with $5 billion in assets, and $17 billion in assets under management recently mentioned nCino. On a recent earnings call the company highlighted the growth in their digital account openings and nCino’s role in their success by stating. "Deposit account applications increased 300% from March through April and remained at elevated levels in May."
Efficiency gains and customer satisfaction are not the only things we like about nCino products, they are also building out a new layer of their software platform called nCino IQ or nIQ analytics platform. Using artificial intelligence, data analytics, and machine learning to allow their customers to make better decisions and be more informed. This is added value to their main operating systems and holds great promise.
nCino had a 147% subscription revenue retention rate for fiscal 2020.
They helped customers to fund more than $50 billion in PPP loans under the CARES Act.
They had $388 million in cash and equivalents on the books, and zero debt.
Expanding globally which will increase their total addressable market (TAM)
nCino IQ data analytics hold great potential and is just getting off the ground.
nCino (CNCO) is a growth stock and does not pay a dividend, you are paying for growth, additionally, the current price target for CNCO is around $90 but is currently selling around $80. Although the valuation is rather high and It would be more reasonable to pick up the stock in the $50 to $60 range, we still believe this is a good speculative investment worth looking into. Do your research and see if this great stock is worth adding to your portfolio.
Other Stocks we looked at:
Disclosure: mysmallbank.com nor the author received any compensation from the mentioned security for this article. The article is our opinion only and is written to help readers learn more about the stock mentioned in this article. Consider this as basic information only and utilize professional services and additional sources before making an investment decision.