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Q2 Holdings Whisper

Q2 Holdings Whisper
 

Research Question: Can Q2 Holdings’ increased sales force bring on enough banking clients to sustain its growth?

Companies Covered: 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)

Report Available: March 13, 2015

 

Blueshift’s initial research shows Q2 Holdings growing at a rapid clip and will continue to do so as it expands its sales force with funding from its recent IPO, but many larger competitors hold a stake in the market and small bankers may be slow or unwilling to adopt new technology.

 

Observations

  1. QTWO recently reported$22.1 million in revenue for its Q4, up 41% year-over-year. Its full year revenue of $79.1 million was a 39% increase year-over-year. Gross margins saw over a 1000 basis point increase. During the quarter, the company added two Tier 1 customers for a total of five, rolled out its new platform and added 1.2 million users. QTWO recently went public and shows net income and cash flow losses for the year. The company’s 2015 revenue guidance is 5% lower than its 2014 revenue growth.
  2. QTWO offers a cloud-based banking service to smaller financial institutions that do not have the resources to offer to its own customers. QTWO’s target market, regional and community financial institutions (RCFI), represent amarket size of $3.5 billion. Currently QTWO has penetrated just 3% of this market, leaving it with ample opportunity to grow. Demand for online banking is at an all-time high as fewer customers walk into banks to complete their banking needs. With QTWO’s cloud banking, the smaller RCFIs can better compete with the larger banking institutions like BAC and WFC who already have their own online solutions. In its recent IPO, the company raised $93 million, most of which will be used to expand its sales force. Job boards confirm this finding as QTWO has posted several different sales manager positions.
  3. QTWOfaces competition from other firms that provide similar services such as core processing vendors. Most possess greater technical and financial resources than QTWO. Competitors include Digital Insight (a recent NCR acquisition), ACIW, EPAY, JKHY, FISV, and FIS. The company may face future expenses caused by patent trolls since it did not sufficiently protect its intellectual property. QTWO may struggle to meet its sales growth targets. The sales cycle is extremely long and many cultural issues need to be overcome when trying to convince small bankers that a customer’s digital experience can be just as rewarding as his or her personal experience. Common complaints about QTWO on employee review boards include low pay and benefits, a work-life imbalance, and a cult-like atmosphere where during company events, employees (trust warriors) from different departments (tribes) engage in “drum circles” led by an inspirational speaker.

 

To determine if Q2 Holdings can continue to sell its cloud based solutions at its current pace, Blueshift will gather data and issue a market research report from independent sources in the following areas: regional/community banks, competitors, banking IT managers, core processing vendors, and industry specialists.

 

To see other ideas Blueshift Research is currently working on, please click here.