Demandware Positioned for 45%-50% Subscription Growth in 2015


Demandware reported solid fourth-quarter results, with subscription revenue of $33.5 million increasing 47% and coming in nearly $2 million above the Street and above our preview of a $1.5 million beat. Upside was driven by another solid performance from Demandware’s existing customers, which had a strong holiday season and again grew GMV in excess of 30% in the quarter. The company’s contracted backlog (minimum committed subscription fees plus deferred revenue) exited the year at $348.6 million, up 67% year-over-year ($140 million increase) and representing meaningful acceleration from 2012’s 47% backlog growth.

Although backlog is affected by the timing of renewals, we believe its growth is indicative of the record new bookings performance Demandware had in 2013, and is notable given: 1) contract duration was relatively consistent in 2013 when compared with 2012 the company faced a headwind from the Finish Line (FINL $25.41) customer loss, which was in the backlog numbers at year-end 2012 but removed from backlog at year-end 2013. Although the company did not call out new bookings in the quarter, management said that average ACV from new deals signed in the final period was again in excess of $400,000, and it said bookings were relatively even across each of the four quarters in 2013. Finally, management said that fourth-quarter new bookings were more balanced across each of the different geographies when compared with the first half of the year (which was more North America–weighted), consistent with our preview.

The company’s initial outlook into 2014 was ahead of expectations and our preview, highlighted by full-year subscription revenue guidance that at the midpoint was $3 million above the Street, and represents organic growth of 39%. Management continues to take a conservative approach toward its guidance, modeling GMV growth within its customer base more in line with the overall market rate, and we believe it left room to continue to beat and raise subscription revenue guidance as it moves throughout the year—just as it did in 2013. Demandware’s non-GAAP earnings guidance for 2014 was in line with the Street and slightly ahead of our model, although the company still expects full-year net losses as it continues to reinvest in the business.


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