Last May I wrote that BlackLine issued a nice quarterly report – it beat expectations on both the top and bottom lines – yet it seemed a bit odd that the stock swooned 5 percent. Darned if it didn’t happen again. Recently, BlackLine issued a nice quarterly report – it beat expectations on both the top and bottom lines – yet the stock swooned 10 percent. What’s going on? If you skim through some analysts’ reports, you get the sense that investors are wary that BlackLine’s impressive growth is slowing. The Woodland Hills company had torrid revenue growth of 62 percent in 2015, and apparently investors expected that to continue. But it slowed to 44 percent last year, and the company now expects growth to be 28 percent this year. Most companies would be thrilled to have growth of 28 percent, but for a young, quickly expanding company like BlackLine, it’s a bit less than expected. And since BlackLine’s stock price apparently has rapid growth built into it, the stock is deflating as the growth rate slows. Still, in reading through some of the reports, you can’t help but conclude that this is an impressive company. (And, no, I don’t own the company’s stock, or any local company’s stock, by policy.) BlackLine sells accounting software as a service that helps companies manage finances, reconcile balances, complete closings and even monitor regulatory matters. It competes with much bigger and more established players, but BlackLine’s cloud-based subscription model means it isn’t stuck with using old on-premises systems like some of its competitors. The company, which went public only a couple of years ago, isn’t posting a profit yet, but it is essentially debt free and steadily bringing down its costs. It hasn’t had major hiccups, or at least not big public ones. It counts Coca-Cola and Costco among its customers. Speaking of customers, its roster of clients grew 19 percent from a year ago and now stands at about 2,500. That implies the company is getting most of its growth from new customers and not so much from expanding sales to existing customers. But the company appears to be on top of that, too: it is adding products and services, so it may be able to upsell to its stable of clients in the future. And it is expanding overseas to get more new customers. The company’s stock started the year at about $33 and hit a peak a month ago at nearly $57 but skidded with the brutal October selloff. It rallied a bit but after the earnings report, it sank again and got down to the low $40s. BlackLine is a rare presence in the San Fernando Valley. Our area just doesn’t have many new, tech-oriented, $2-billion-in-valuation companies that are rapidly growing. So yeah, I’d love to see it continue to succeed and grow quickly. Even if it’s not quick enough for some stock investors. • • • Speaking of rapid growth, please check out our special report in this issue called Fastest Growing Private Companies. None of these companies are as big as BlackLine, but some of them may be some day. If you go down the list, you’ll see some names you probably haven’t seen before, but again, you may soon. After all, names such as Forever 21, Dollar Shave Club and Snapchat were unfamiliar to most just a handful of years ago. Now they are some of the most recognizable young and strong companies in Los Angeles. Call it human nature: We tend to focus on the companies in trouble, that are shrinking or moving out. That’s why it is reassuring to go down our list of fast-growing companies; it’s a reminder that, yes, there are plenty of companies out there thriving and growing quickly. In other words, it shows that the business community is dynamic and replenishing itself. • • • I know, I know. You’re weary of hearing about last week’s elections, what they really mean, yada, yada. But if you can stand one more thing: Dating back to the end of World War II, we’ve had 18 midterm elections prior to last week’s. Stocks were higher 12 months after every one. That’s 18 out of 18. And they were higher by a big measure, generally. Stephan McBride wrote this in Market Watch last week: “Since 1946, stocks have risen an average of 17 percent in the year after a midterm. And if you measure from the yearly midterm lows, the results are even better. From their lows, stocks jumped an average of 32 percent over the next 12 months. For perspective, that’s more than double the average performance for stocks in all years.” He went on to point out that, in addition, “we’re entering the third year of a presidential term, which is historically the strongest year for stocks.” And I’ll add this: Stock markets love divided government, which of course we have now as a result of the elections. Some of the biggest rallies in recent decades happened when the Democrats and Republicans split control. Some think the upcoming year will be an exception and the markets will disappoint. Well, OK, but no one has a crystal ball. All I know is that there’s lots of history to suggest 2019 will be a big one for the equity investors. Let’s check back in a year. Charles Crumpley is editor and publisher of the Business Journal. He can be reached at [email protected].
