BV

Bazaarvoice, Inc. (BV)

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Exchange: NASDAQ
Industry: Technology
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Bazaarvoice (BV)

Q3 2013 Earnings Call

February 21, 2013 4:30 pm ET

Executives

Brian Smith

Stephen R. Collins - Chief Executive Officer, President and Director

James R. Offerdahl - Chief Financial Officer

Analysts

Mark R. Murphy - Piper Jaffray Companies, Research Division

Thomas Ernst - Deutsche Bank AG, Research Division

Karl Keirstead - BMO Capital Markets U.S.

Stephen Ju - Crédit Suisse AG, Research Division

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Adam H. Holt - Morgan Stanley, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Bazaarvoice Third Quarter 2013 Earnings Conference Call. Today's conference is being recorded. I would now like to turn the call over to Brian Smith, Vice President of Finance for Bazaarvoice. Please go ahead.

Brian Smith

Good afternoon, and welcome to today's conference call to discuss Bazaarvoice's financial results for the third fiscal quarter of 2013 ended January 31. I'm joined today by Stephen Collins, Chief Executive Officer and President; and Jim Offerdahl, Chief Financial Officer. Following prepared remarks from Stephen and Jim, we'll have a question-and-answer session. Please note that we are simultaneously webcasting this call on our Investor Relations website at investors.bazaarvoice.com. The earnings press release, with our results for our third fiscal quarter of 2013, was issued earlier today and is also posted on our Investor Relations website. Please remember that certain statements made during this call including those concerning our business outlook and guidance, growth plans and opportunities, potential acquisitions, sales execution and our ability to capitalize on our opportunities are forward-looking statements. Forward-looking statements are subject to a number of risks, uncertainties and assumptions that are described in our SEC filings, including the Risk Factor section of our Form 10-K for the fiscal year ended April 30, 2012, our Form 10-Q for the fiscal quarter ended October 31, 2012, Form S-1 as filed with the SEC on July 12, 2012, and other documents that we may file with the SEC in the future. Should any of the risks or uncertainties materialize or should any of our assumptions prove to be incorrect, actual results could differ materially and adversely from those anticipated or implied in these forward-looking statements. In addition, forward-looking statements are also based on currently available information, and we undertake no duty to update this information. Additional cautionary language regarding these forward-looking statements is further described in today's press release. Finally, some of the numbers that we will discuss during this call will be presented on a non-GAAP basis. Today's press release, together with the accompanying tables, contains the calculations of these non-GAAP financial measures and a full reconciliation between each non-GAAP measure and its corresponding GAAP measure.

With that, I would now like to turn the call over to Stephen.

Stephen R. Collins

Thanks, Brian. Good afternoon, everyone. First, I want to thank all of our global employees for their focus on and commitment to our clients. I'm extremely proud of the team's accomplishments that this quarter and absolutely believe that our company is exceptionally well-positioned and equipped to deliver outstanding value to our clients and outstanding returns to our investors.

We began the quarter with the acquisition of shopper media company, Longboard Media, and a leadership change for the CEO role. These events reflected a fulfillment of and a commitment to the success of our strategy and represent our company's recognition of the amazing opportunity to build a highly valuable business in the dynamic and rapidly changing eCommerce marketplace. I spent my first quarter as CEO focused on digging into the details of our addressable market and talking to clients and evaluating our sales focus and performance in our business. As a result of that analysis, I'm extremely confident that our addressable market opportunity on a global scale is substantial and that focusing on new client acquisition in conjunction with existing client retention is our #1 priority to drive revenue growth and to build the most valuable company for the long term.

Let me talk about our addressable market opportunity. From a brand standpoint, we've identified more than 50,000 unique brands in our data, selling their products to retailers within the Bazaarvoice network. Each of these brands could potentially be a client for ratings and reviews, connections, media solutions or all 3. Even with some of our largest and most mature brand clients, we are not yet half penetrated into their family of brands and we still only have approximately 1/4 of the Fortune 500 as clients. As a percentage of these large brands' total marketing spend, our share of wallet is only a small fraction.

From a retailer standpoint, we still only have approximately 30% of the largest 1,000 online retailers in the United States, with slightly less of a penetration with the largest online retailers in Europe, and we are not yet in Latin America or Asia in a meaningful way. While eCommerce is much smaller in these emerging markets, it won't stay that way. Notably, 85% to 90% of our clients' retail revenue still come from bricks and mortar sales. And we have opportunities to extend our solutions to create value in this area as well.

In addition to our brand and retail market strategy, we have thousands of potential new clients from enterprise levels to small businesses. We have the future potential for revenue from solutions we market down the road, and we have a tremendous opportunity as we continue to educate and create our market to drive demand.

While our market opportunity is substantial, my analysis as CEO confirmed that we lost our focus on new client growth during fiscal 2012 and 2013, which has negatively impacted our near-term revenue growth rate. We talked about that last quarter. The bottom line is that the number of new clients we added during these periods was not large enough to build a robust new cohort of clients to sustain historical revenue growth rates in the near term. We placed too much emphasis on existing client sales during this period, and we simply did not build quickly enough the new client foundation that is fundamental to our economic model. Now this is all about execution, and we are going to get back on track in this regard. I'm confident that we'll succeed, but it will take the next few quarters to build up to where we need to be to put revenue growth in line with the market opportunity we believe that we have. And in this last quarter that we just completed, we made great progress in this area.

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