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8/30/16 (all per share values and prices reflect CHUBK closing price as of 8/25/16)

Recommendation: Long CommerceHub Inc (Class C Stock) (CHUBK)


Summary
CommerceHub is a SAAS (Software as a Service) company that enables ecommerce fulfillment between retailers,
brands and end-customers. The company was recently spun out of Liberty Ventures (Ticker: LVNTA) and is
meaningfully underfollowed by the investment community and sell-side given a limited initial roadshow.
Prior to the spin, Liberty and CHUBK management had limited interaction with investors. In the past 4 years CHUBK
has grown revenue 20%+ annually with 70% gross/50% EBITDA margins. Growth is leveraged to ecommerce
tailwinds as its revenue model is approximately 2/3rds usage based and 1/3rd subscription fees. This combination
allows CHUBK to have a base-line income stream with a call option on continued e-commerce growth despite the
negative secular headwinds traditional retail sector.
At its current price of $13.13/share, I estimate the CHUBK 2016 EV/EBITDA to be 13.7X while its closest retail SAAS
peer, SPS commerce (Ticker: SPSC), currently trades at 36X EV/2016 EBITDA. Notably, 2/3rds of CHUBK revenue is
driven by ecommerce volumes and not by recurring software fees which I believe makes CHUBK more closely
comparable to retailers with strong ecommerce platforms, which trade at an average EV/EBITDA multiple of 9.4x
based on consensus 2016 estimates.
Current Valuation for CHUBK
Current Share Price
$13.13
Based on my 2016 estimates, if CHUBK trades a multiple
rd
FD Shares Outstanding
44.5
that is 1/3 SAAS and 2/3rds retail, the implied multiple
Market Cap
$584
would be 18x EV/EBITDA and therefore suggests CHUBK
Plus : Pfrd
0
should be valued at $17.52 or 33% above the current price.
Plus
:
Debt
50
I also see additional optionality as an acquisition candidate
Less: Cash
20
for a larger software company. Demandware, a slightly
Enterprise
Value
$614
larger ecommerce focused software company, was recently
acquired by CRM for over 80x EV/EBITDA. I believe this
suggests that large software companies are interested in
owning smaller fast growing cloud based software names
that are levered to ecommerce strategies. Both
Demandware and CommerceHub fit this profile.
Background
CHUBK was spun out of John Malones LVNTA on July 22nd
2016. LVNTA built CHUBK over the past decade through a
series of acquisitions and significant internal investment.

2015 EBITDA
2016 Est EBITDA
2017 Est EBITDA
EV/EBITDA 2015
EV/EBITDA 2016
EV/EBITDA 2017

$
$
$

43.0
45.0
48.3
14.3x
13.7x
12.7x

* EBITDA a nd va l ua tion ba s ed off of da ta from


CHUBK S1, a s wel l a s propri eta ry es tima tes a nd a na l ys i s .

Prior to the spin, I dont believe the equity market ascribed a fair value to CHUBK inside the broader LVNTA
corporate structure. Once it reached scale, it is my understanding that Liberty management felt it was time to spin
out CHUBK as a stand-alone business it was not getting enough credit inside LVNTAs structure.
As per the CHUBK S1 filing, it is important to note that CHUBK is not a traditional Liberty tracking stock, but rather
a hard spin, resulting in the outright ownership of the business vs. reference entity with credit risk to Liberty. Thus,
on July 22nd 2016 shareholders of LVNTA received common voting shares of the new separate entity
CommerceHub, Inc. Malone still has control through a supermajority voting class of shares as per the CHUBK initial
filings.
Share Count - Pro forma for the spin (before future stock compensation incentives and management options)
there were 42.6 mm shares of CommerceHub outstanding.

Series A (4445)- Nasdaq listed Malone 1% ownership 13.5 mm shares out


Series B (CHUBB) OTC Malone 94.3% ownership 0.7 mm shares out
Series C (CHUBK) Nasdaq listed Malone 5.4% ownership 28.4 mm shares out
-

Following the consummation of the Spin-Off, Mr. Malone is expected to beneficially own shares of our common stock
representing less than 1% of CH Parent's Series A common stock, approximately 94.3% of CH Parent's Series B common
stock, approximately 5.4% of CH Parent's Series C common stock and approximately 33% of CH Parent's voting power,
based upon the distribution ratios for the Spin-Off and his beneficial ownership of LVNTA and LVNTB as of April 30, 2016.

*Source: CHUBK S1

Business Description
CHUBK is a cloud-based e-commerce fulfillment and marketing software platform of integrated supply, demand
and delivery solutions for large retailers, online marketplaces and digital marketing channels, as well as consumer
brands, manufacturers, distributors and other market participants. The companys solutions combine supply,
demand and delivery over a single platform. The software platform acts as a hub that allows trading partners to
maintain an omni-channel relationships in consumer and B2B e-commerce markets.
CHUBK has approximately 9,500 customer or trading partners with access to the platform daily to exchange critical
information with each other, including orders, invoices, product information and other electronic documents.
Collectively, the trading partners constitute a vibrant network of the largest retailers, marketplaces and brands in
North America that use the platform to interact with one another to more efficiently manage and orchestrate
sophisticated supply-chain strategies.
Key Partners & Strategic Positioning

*Source: CHUBK Investor Presentation

Revenue Drivers
Per the S1, CHUBK derives 68% of its revenue from usage fees that are based on the retail volume of activity (% of
GTV ~ Gross Transaction Value) that its customers process. The balance of the revenues include recurring
subscription fees and non-recurring installment charges.

According to eMarketer, e-commerce sales are expected to more than double on a global basis to $3.6T by 2019
vs. 2015. This could provide CHUBK with a multi-year term secular growth story with limited competition based on
our due diligence.

*Source: CHUBK Investor Presentation

History
The company was founded in 1997 by Frank Poore and Richard Jones, and was acquired by QK Holdings, Inc. in
August 2006 and later by Liberty in May 2010.
CHUBK provides solutions to an affiliate company, QVC, which is a wholly owned subsidiary of Liberty. For the
three months ended March 31, 2016 and 2015, revenue from fees paid by QVC, together with revenue from fees
paid by QVC's suppliers, collectively accounted for approximately 8% of total revenue. For the years ended
December 31, 2015 and 2014, revenue from fees paid by QVC, together with revenue from fees paid by QVC's
suppliers, collectively accounted for approximately 8% and 10% of total revenue, respectively.
*Source CHUBK S1
Competition
CHUBK competes primarily with other SAAS providers servicing the e-commerce industry; however, the
competitive dynamics of the market are unpredictable because it is fragmented and rapidly evolving. Due to the
nature of the business and the variety of products the company offers, CHUBK does not believe there is one pure
competitor, but rather different competitors across CHUBKs product offerings.
The company splits out its business into 3 different segments, as follows:

Supply Solutions
Similar offerings include VendorNet (which is owned by eBay Enterprise) and SPS Commerce in
North America and VirtualStock and Kewill, among others, in Europe. Additionally, it also faces
competition from in-house developed solutions used by retailers that choose to build and
maintain their own proprietary integrations to online channels, using a combination of order
management, custom written software and value-added networks.

Demand Solutions
Competitors in this segment are highly fragmented, including Channel Advisor, Merchant
Advantage and various advertising and digital marketing agencies.
Delivery Solutions
Competitors include the major shippers (UPS, FedEx) and logistic companies.

* Source CHUBK S1

Historical Operating Performance


Despite having a business model with comparable clients, end-market and revenue growth and a 11.9x EV/EBITDA,
I believe CHUBK trades at a material discount to the 18x implied multiple derived from taking the average multiple
across high e-commerce exposure retails and software companies.. I estimate that CHUBK actually has 40% EBITDA
margins vs. 15% for many SAAS based software companies with 15 to 20% historical revenue growth.
*Source CHUBK S1
CommerceHub valuation
CommerceHub Historical EBITDA and Revenue
y/y % chg margin %
Revs
y/y % chg
2015 Adj. EBITDA
$ 43
25%
49.1%
2015 $
88
33%
2014 Adj. EBITDA
$ 34
14%
52.1%
2014 $
66
29%
2013 Adj. EBITDA
$ 30
43%
58.8%
2013 $
51
34%
2012 Adj. EBITDA
$ 21
40%
55.3%
2012 $
38
27%
2011 Adj. EBITDA
$ 15
50.0%
2011 $
30
* Revenue and EBITDA sourced from CHUBK S1, and publicly disclosed Liberty Interactive Corp presentations.
2016E Est EBITDA
CommerceHubb EV/EBITDA multiple
EV
Debt
Cash
Equity value
FD SHOUT
Share value

$
$
$
$
$
$

45.0
9.5x
427
50.0
20.0
397
44.5
8.93

$ 45.0
11.5x
$ 517
$ 50.0
$ 20.0
$ 487
44.5
$ 10.95

$ 45.0
13.5x
$ 607
$ 50.0
$ 20.0
$ 577
44.5
$ 12.97

$ 45.0
15.5x
$ 697
$ 50.0
$ 20.0
$ 667
44.5
$ 15.00

$ 45.0
17.5x
$ 787
$ 50.0
$ 20.0
$ 757
44.5
$ 17.02

**adjusted EBITDA reflects add back of historical stock compensation for management.

Comparable Companies
One important aspect of understanding CHUBKs cash flows and the quality of its EBITDA is its stock compensation.
While stock-compensation add backs are a debated issue with SAAS based companies, the historical financial
results for CHUBK as provided in the Liberty Interactive Investor Day slide presentation from November 12th 2015
show that almost all of the companys adjusted EBITDA is generated from an add back of stock compensation. This
makes the companys stock compensation look massive on both an absolute basis and on a relative basis when
compared to other software companies. However, CHUBKs large stock compensation expense was driven by the
companys accounting policies that will no longer be available now that it is a public company.
As a private company, stock compensation, related expenses and related liabilities were derived from a process of
having third parties value the company and a cash settlement accounting technique to account for stock
compensation. With public companies, the majority of stock compensation is accounted for as stock settled
awards which can result in significantly smaller stock compensation add backs to adjusted EBITDA and the
appearance of a more robust cash flow as a result. Going forward, I believe this should result in considerably lower
amounts of stock compensation imbedded in CHUBKs operating expenses bringing the company more in-line with
other publicly traded software companies.
For details regarding the equity compensation program please see the CHUBK S1 filed 7/14/16.

SAAS Comps
BRIGHTCOVE
BAZAARVOICE INC
CARBONITE INC
CORNERSTONE ONDEMAND INC
CHANNELADVISOR CORP
FIVE9 INC
JIVE SOFTWARE INC
MARIN SOFTWARE INC
SERVICENOW INC
PAYCOM SOFTWARE INC
PAYLOCITY HOLDING CORP
PROOFPOINT INC
QUALYS INC
RINGCENTRAL INC-CLASS A
INCONTACT INC
SPS COMMERCE INC
WAGEWORKS INC
Average
Median

BCOV
BV
CARB
CSOD
ECOM
FIVN
JIVE
MRIN
NOW
PAYC
PCTY
PFPT
QLYS
RNG
SAAS
SPSC
WAGE

MRKT
CAP (mm's)
$390
$335
$356
$2,457
$310
$746
$341
$105
$11,744
$2,940
$2,206
$3,162
$1,232
$1,674
$865
$1,110
$2,226

2015
EV/EBITDA
52.7x
NA
17.7x
170.2x
NA
NA
40.4x
NA
76.2x
60.2x
309.5x
686.2x
18.9x
261.7x
71.8x
44.5x
18.7x
140.7x
60.2x

2016
EV/EBITDA
41.0x
557.8x
10.3x
78.3x
99.0x
154.2x
15.8x
66.2x
45.5x
34.2x
79.9x
124.1x
15.8x
75.3x
41.2x
37.2x
16.0x
87.8x
45.5x

2017
EV/EBITDA
31.9x
41.4x
9.6x
45.0x
47.3x
77.7x
13.0x
44.0x
29.6x
26.6x
55.2x
70.1x
13.1x
48.2x
29.7x
28.7x
13.5x
36.7x
31.9x

2017 Est
2017 Est
Rev Growth EBITDA Margin
10.5%
6.9%
2.0%
3.4%
3.4%
15.8%
22.3%
10.3%
14.3%
4.1%
17.7%
5.1%
-5.5%
9.5%
1.9%
1.5%
29.6%
21.6%
29.0%
25.8%
30.2%
12.9%
28.5%
9.5%
18.6%
33.0%
23.7%
6.9%
15.5%
9.4%
18.9%
14.8%
11.5%
32.1%
16.0%
13.1%
17.7%
9.5%

RH
WSM
AEO
ANF
URBN
PVH
OXM
LULU

MRKT
CAP (mm's)
$1,382
$4,706
$3,352
$1,500
$4,316
$8,669
$1,061
$10,973

2015
EV/EBITDA
8.4x
7.1x
9.1x
3.2x
8.0x
9.6x
9.9x
24.7x
10.0x
8.7x

2016
EV/EBITDA
6.3x
6.9x
6.4x
4.0x
8.2x
10.6x
9.0x
24.2x
9.4x
7.6x

2017
EV/EBITDA
9.0x
6.8x
5.8x
4.4x
7.7x
10.9x
9.9x
20.9x
9.4x
8.3x

2017 Est
2017 Est
Rev Growth EBITDA Margin
-0.2%
8.9%
4.2%
13.2%
3.6%
14.6%
-1.9%
8.9%
4.2%
14.6%
2.3%
12.9%
6.3%
11.8%
14.5%
21.2%
4.1%
13.3%
3.9%
13.0%

614

14.3x

13.7x

12.7x

Retail Comps
RESTORATION HARDWARE HOLDING
WILLIAMS-SONOMA INC
AMERICAN EAGLE OUTFITTERS
ABERCROMBIE & FITCH CO-CL A
URBAN OUTFITTERS INC
PVH CORP
OXFORD INDUSTRIES INC
LULULEMON ATHLETICA INC
Average
Median

CHUBK

15%

**Comparable company analysis sourced from Bloomberg data and proprietary calculations.
** SPS Commerces EBITDA includes add-backs

Conclusion

SAAS based software and Ecommerce GMV driven model


Fast Growing ecommerce addressable market (21% estimated 4 year CAGR through 2019 according to
eMarketer)
Large blue-chip customer base with 9,500 plus customers
High gross margin 70%+
Comparatively low sales and marketing expense: 13% of revenue
Robust EBITDA margin +40%
Clean balance sheet
Discounted valuation
Strategic value to buyer

42%

Disclaimer:

The write up is not investment advice or a recommendation or solicitation for any investment fund or
to buy or sell any securities. The author and/or related persons may hold a position in the subject
company; however, no representation or warranty, express or implied, is being made that the author
and/or related persons will continue to hold a position in the subject company. The view expressed
on the subject company or its investment positions therein is subject to change at any time, for any
reason or no reason. This includes buying, selling, covering or otherwise changing the form or
substance of its investment. The author and/or related persons disclaims any obligation to notify the
market of any such changes. The information and analysis presented in this write up is based upon
publicly available information only. While the author has tried to present the facts it believes are
accurate, no representation or warranty, express or implied, is being made as to the accuracy or
completeness of the write up, and the author expressly disclaims any liability relating to the write up
(or any inaccuracies or omissions therein). The author undertakes no obligation to correct, update
or revise the write up or to otherwise provide any additional materials.