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Q2 Holdings Idea Proposal (QTWO)

Q2 Holdings Idea Proposal (QTWO)
 

Will Q2’s new products and recent product enhancements be the catalyst that ensures its upmarket success?

Report Available: September 15, 2017

 

Blueshift’s initial research shows QTWO’s cloud-based banking service continuing to grow at a rapid pace during the first half of 2017, including impressive new business in the Tier 2 and 3 markets. The company, however, has not yet secured any Tier 1 contracts this year. Management said the Tier 1 pipeline is robust, though the anticipated two to seven large bank contract wins have not materialized. QTWO introduced several new products and product enhancements which may help drive its upmarket initiative.

 

Observations

  1. QTWO reported a loss of $7.8 million, but beat Wall Street’s earnings expectations. Revenue which was up 32% year to year and up 7% sequentially. Quarterly highlights include the addition of 600,000 new users, bringing the total number of registered platform users to 9.6 million, a 25% year-to-year increase.
  2. During the second quarter, Q2 Labs, QTWO’s newly-formed digital-first product development group, launched Q2 Open. Q2 Open is a portfolio of open API financial services that allows any financial organization to develop and improve their own banking applications. The product has recently been used by Qapital to develop and power several fintech brands and applications and now has over 300,000 users. Another key highlight was the announcement by the National Association of Federal Credit Unions (NAFCU) that Q2 Smart, QTWO’s targeting and messaging platform, had been named the recipient of the 2017 Innovation Award from NAFCU Services.
  3. Challenges facing QTWO in its upmarket quest include significant competition and potential pricing pressure. Competition from companies like FIS and FISV could derail QTWO’s upmarket move. A further challenge to QTWO’s growth would be if FIS, FISV, or other competitors aggressively move down market with a low-price offering.
  4. Blueshift’s March 18, 2016, report found the company poised for growth due to increasing demand and happy customers. QTWO’s customer satisfaction levels are high, according to the five Q2 users interviewed. Ratings ranged from 7 to 10 (on a 1-to-10 scale) and averaged 8.6.QTWO was praised as being a best-in-class solution with efficient, highly functional solutions that offer seamless integration with other banking products. The company also was credited with being forward-thinking and as offering solid customer service and a strong level of industry knowledge. The primary challenge to QTWO is the highly competitive and ever-changing market. Sources mentioned more than 20 potential competitors, including some that are Q2 partners.As initially found in Blueshift’sMarch 13, 2015, report and confirmed in this update, virtual banking solutions in general are expected to post organic, cross-selling and new customer growth for the next three to five years.

 

Will QTWO’s new products and product enhancements drive Tier 1 sales? Can the QTWO sales team close the two to seven Tier 1 financial institutions in the second half of 2017? Is QTWO at risk in its key Tier 2 and 3 markets? How are QTWO’s renewal rates? Is QTWO expanding within existing customers at meaningful levels? What fintech competitors are gaining and losing market share? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Tier 1 banks, Tier 2/3 banks, QTWO partners, and Industry specialists.

 

Companies: Q2 Holdings (QTWO), NCR Corporation (NCR), ACI Worldwide (ACIW), Bottomline Technologies (EPAY), Jack Henry and Associates (JKHY), Fiserv (FISV), Fidelity National Information Services (FIS), Wells Fargo (WFC), Bank of America (BAC)

 

Research Begins: August 28, 2017