In this article, I will explain how Verb Technology (NASDAQ:VERB) could be the next big SaaS (software-as-a-service) success story. While it is difficult to predict how successful Verb could be, the stock appears ready for an inflection point as the company recently raised cash and Verb’s users are increasing on a monthly basis. On July 24, 2020, Verb Technology raised $13.8 million in proceeds from a recent stock offering (with full exercise of over-allotment option) to flush itself with cash and potentially negate the need to ever raise cash again.

Verb, formerly known as nFusz before its IPO in May 2019, is the rapidly emerging leader in interactive video-based CRM sales and marketing applications. The company uses proprietary, cloud-based, patent-pending SaaS platform technology to provide users with real-time, measurable results on desktop or mobile devices for individuals or enterprises. Impressively, some customers report greater than 600% and even up to 1100% increases in sales conversion rates, as well as 3300% increases in retention rates. Essentially, Verb recently launched one the most effective, easy to use, and affordable CRM sales tool available in the market today.

With the IPO of Zoom (ZM) in April 2019 at a valuation of $9.2 billion, and its subsequent rise to a valuation over $70 billion, investors should be looking for similar promising and forward-thinking SaaS technology companies. After all, the SaaS darling Salesforce (CRM) IPO’d 16 years ago at the equivalent of $3.95 today, and was valued at around $1.1 billion. Now the company is worth ~$173 billion and the stock has appreciated about 50x. With disruptive technology that is being rapidly adopted, Verb Technology, with a current market cap of around ~$45 million, has the reason and the room to run and be the next SaaS darling.

Spotlight on Verb and Its Products

Verb has created a unique sales tool – a modern, new-age CRM – that allows even untrained or unskilled salespeople to sell effectively. This is primarily done through interactive video, in which sales communication takes place primarily through video with clickable links, minimizing cumbersome follow-up and allowing for spontaneous purchases to take place. In fact, in a case they performed, clients saw conversion rates increase 1200% over not text, but normal video. These capabilities and other aspects of Verb’s innovations either have been patented or are patent pending. Thus, it is not outlandish to forecast that Verb could be the next big SaaS success. Verb’s technological capabilities include:

These various capabilities are accomplished through Verb’s main software offerings (video/demos linked): VERB LIVE, VERB CRM, and VERB LEARN. Verb CRM incorporates most of the basic capabilities outlined above as well as the interactive videos with clickable links, which increase conversion rates substantially. Verb LEARN is the LMS system. Verb LIVE is particularly interesting, as it:

builds on popular video-based platforms such as Facebook Live, Zoom, WebEx, and GoToMeeting among others by adding VERB’s proprietary interactive in-video e-commerce capabilities, including an in-video Shopify shopping cart, integrated for Shopify account holders to our own live stream video broadcasting application. VERB LIVE is a next generation webinar platform that allows webinar hosts to utilize a variety of novel sales driving features, including placing interactive icons on screen that appear on the screens of all viewers providing in-video, click to purchase, impulse buy capabilities for products and services featured in the live video broadcast in real time, driving friction free selling. (Rory Cutaia, Q1 2020 Earnings Call)

Thus, for certain purposes such as webinars that might lead to impulse buying, Verb LIVE seems to be superior to both Shopify (SHOP) and Zoom where it can provide selling capabilities during webinars.

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Source: Verb FWP Form

In addition to these capabilities and products, Verb has set up its own in-app app store for other product offerings, future offerings, and third-party developed software similar to Salesforce’s third party software and Apple’s (OTC:APPL) app store. This provides for the formation of a strong network effect, serving as a potential future competitive moat as it is easier for third party developers to make money by developing applications for Verb than making standalone products. This Verb App Store was recently launched and could be a substantial driver for additional revenue for Verb. According to CEO Rory Cutaia on the Q1 earnings call:

Some of you longstanding stockholders may recall some early talk about the development of our own ecosystem, or App Store, essentially a tab in our app through which users could subscribe for complementary apps or upgraded features and functionality. The purpose was to generate greater revenue per user from our existing user base, which has grown considerably over this past year. Well, in order to execute that strategy, we needed to develop and deploy in-app purchase capability for each user. I’m proud to say that we’ve now finished that development and we are currently executing agreements with other app developers, who will market their application to our users directly through our app on a revenue share basis with us, not unlike what Apple and Salesforce do. […] Taking that a step further, we are releasing an open API that will allow third-party developers to develop applications, features and functionality that will integrate seamlessly into our platform that they will market directly to our users to our app, also on a revenue share basis. And because we now have such a large number of users who have downloaded our application, we have become an attractive and easily addressable market for third-party developers. And that is all very high margin, virtually no cost revenue for us.

Even though Verb can be compared and contrasted with leading SaaS companies such as Salesforce, Verb isn’t necessarily going head-to-head with established CRM leaders. Recently, Verb announced its product integration with Salesforce. Verb is working with, instead of competing directly against, industry titans such as Salesforce, Marketo (ADBE), Oracle (ORCL), and Microsoft (MSFT). With little holding Verb back from success and massive adoption of their technology, investors should at least have Verb on their radar as the Verb products become mainstream. Successful SaaS businesses are rewarded with high revenue multiples as they have high margins, recurring revenues, and a moat due to high switching costs. By not directly competing-rather, collaborating-with existing CRMs, Verb is taking the path of least resistance to market adoption with its products’ various iterations and forms.

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The Opportunity

Verb IPO’d last year with the intention of raising smaller sums of money at higher valuations as they made progress towards a strong product launch. However, this strategy failed as short sellers took advantage of their somewhat lean balance sheet along with smaller amounts of revenues to boast of. The short sellers therefore sniffed out financings, driving subsequent secondary offerings towards a lower valuation, diluting shareholders. However, it now looks like Verb raised a more substantial amount of cash and quite possibly will never need to raise money again due to the strong growth and adoption of Verb products.

Management

Verb has a well qualified board of directors as well as a seasoned management team. CEO Rory Cutaia founded and led Telx, a data center solution provider, which was eventually sold for $1.9 billion to Digital Realty. Early investors made 18x returns in 6 years when Telx was sold for the first time for over $200 million. A recent impressive addition was made to the board: Nancy Heinen, a key member of Steve Jobs’ executive team who turned around Apple when it was still a struggling business.

Valuation

While it’s a bit difficult to extrapolate revenues since the launch curve is just beginning, it helps to look at comparisons for valuation as well as the business’ momentum.

Currently, Verb is adding north of 20,000 users per week, large enterprise clients about every week, and currently has about 1.5 million users on the platform. One thing is clear-downloads and adoption should continue; customers love the Verb apps.

Source: Verb FWP Form

As such, the key metrics to watch are total downloads, new enterprise clients, and the key new to look out for are completed integrations with existing CRM leaders, new product launches, and any other developments that would allow Verb to monetize the existing user base. As is known with all digital social media and SaaS platform technologies, user base growth and user satisfaction is key to becoming a big hit and a ubiquitous technology that can bring in lots of revenue. That being said, how can Verb’s revenues be forecast?

Source: Verb FWP Form

Aside from the quarterly recurring revenue from new client contracts stalling out temporarily (momentum has already resumed) during COVID-19, Verb has clear and strong growth in quarterly revenues and user downloads.

One might assume quite conservatively that Verb can generate about $1/month for the average user. Although the current user revenue appears to be about $1/user*quarter, current enterprises had capped rates that are starting to be surpassed due to added numbers of users per client, and app add-ons and other capabilities are expected to increase revenue per user, so these numbers are artificially low.

Using a forward-looking 2 million users for the end of the year and $12/year*user, Verb could be bringing in $24 million annualized SaaS high-margin revenue by the beginning of next year. According to Verb’s July 7, 2020, S1 Form, the company has 55,245,968 fully diluted shares outstanding. Accounting for future employee incentive programs, one might assume 60 million shares fully diluted.

Using a price per sales ratio of 5x, even though 10x might be more appropriate given Salesforce’s P/S ratio and Verb is in the early stages of launch, Verb shares could be worth $2 by the end of the year. In a more optimistic scenario, 2.5 million users could bring in $3/mo and a 10x P/S could be used, in which case the shares could trade around $15. Verb’s near-term execution and product adoption will be key in assessing the potential value of VERB shares.

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Risks

As referenced in Verb’s 2019 10-K, competition might independently develop software that is not covered by Verb’s patents that nonetheless competes with Verb’s interactive video technology. Also, Verb’s intellectual property could be infringed on in foreign countries where laws or government may not uphold patent rights. This could be very detrimental to Verb’s business.

Additionally, Verb’s product adoption could stall out and fail to be monetized as expected. Since Verb is a small company with a speculative product, failure to ramp up revenues to cover expenses will likely result in substantial dilution to shareholders and a substantial decline in share price.

Conclusion

Verb seems to be on track for successful growth, as evidenced by recent accomplishments such as the launch of Verb LIVE, the App Store, new Japanese operations, and integration with Salesforce software. In fact, employees seem to have an optimistic view of the company’s trajectory and shares. In light of COVID-19, Verb introduced pay cuts in exchange for shares so that the company could conserve cash. It is not so common to see employees of a company bullish on their own company. Surprisingly, these pay cuts were extremely well received, according to CEO Rory Cutaia on the Q1 Earnings Call:

To my great surprise, the pay cut per shares plan was so well received. Not only did every person in the company participate in the plan, but many employees asked if they could take steeper pay cuts in order to get more shares. Believe it or not, many employees asked to take 40%, 50%, 80% even a 100% pay cut in exchange for VERB shares during the three months of the plan. Well I believe the maximum pay cuts we allowed were 74.5% exchange for the shares. This increased the savings expected to generate from this part of the plan from approximately 360,000 to well over 600,000. I have to say that I was extremely humbled by the showing of confidence in the company by the very people who have the greatest visibility into the company, including into our products and operations and I honestly couldn’t be more proud. Above everything else I’ve shared with you today that speaks more about this company than anything I could possibly say.

This has the potential to be the next big SaaS story.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.



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