As longtime readers of mine know, I’m hugely bullish on the equity crowdfunding market, and very excited about the enormous investment opportunities it presents to retail investors. Long story short, for the first time ever, average retail investors can be their own venture capitalists and invest in high-quality, next-generation startups for as little as $10.
So, over the past few months, I’ve combed through equity crowdfunding platforms like SeedInvest and StartEngine, looking for early-stage, explosive investment opportunities. In that research, few companies have stood out to me more than Commerce.AI.
Indeed, my research and modeling suggests that this company — which is currently raising up to $1.07 million on StartEngine at a valuation of $26 million — could one day in the next decade be worth about $5 billion.
That represents somewhere around 20,000% potential upside.
You won’t find that kind of upside potential in the public markets. You’d be hard-pressed to find that kind of upside potential in the crowdfunding world, too.
So, without further ado, let’s take a deep dive into understanding why Commerce.AI is a unique and compelling high-risk, high-reward investment opportunity for long-term investors.
Who Is Commerce.AI?
At its core, Commerce.AI is a big data play.
More specifically, Commerce.AI is a business-to-business (B2B) data analytics company which uses AI technology to turn the enormous volume of unstructured data on the internet (like social media posts, video clips, news mentions, product reviews, etc) into actionable product development, placement, and marketing insights for merchants and retailers of all shapes and sizes. The company packages this technology into a cloud-hosted Software-as-a-Service (SaaS) platform, which enterprise clients pay to access.
If that sounds confusing, it’s not.
In essence, what Commerce.AI does is allow companies to plug into, analyze, and respond to what consumers are saying about products on the internet.
For example, let’s say images of red athletic shoes are trending on Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB). Commerce.AI will allow shoe makers — like Nike (NYSE:NKE) and Under Armour (NYSE:UAA) — to track and measure this consumer interest uptick in red shoes.
Those companies can then make smarter, data-driven product development decisions (maybe they make more red shoes) and/or smarter, data-driven product placement and marketing decisions (maybe they emphasize red shoes more in their stores, or advertise red shoes more in their television ads).
In other words, Commerce.AI enables merchants and retailers to mine exceptionally valuable consumer interest data on the internet, and turn that data into actionable insights with meaningfully positive financial impact.
Why Is Commerce.AI Positioned to Grow?
In a world awash with “too much”, more is not better — better is better.
There are billions upon billions of consumer products out in the world. Consumers have no shortage of options. They don’t need many more options. So, although 30,000 new consumer products are launched every year, 80% of those new products end up failing, because consumers quite simply don’t need 30,000 new options.
Instead, they need a handful of better options. Commerce.AI enables companies to do just that — deliver consumers better products and better options.
The financial implications of this transformation are huge.
Of course, by delivering better products, companies will make more money, since better products with better marketing will sell better. But they will also save a bunch of money.
Although 80% of new products fail, each new product launch costs money. There are research costs, development costs, marketing costs, distribution costs, so on and so forth. That means each failed product launch equates to a significant financial loss.
By enabling smarter, data-driven product development, placement, and marketing, Commerce.AI significantly reduces the number and magnitude of these losses.
Overall, then, Commerce.AI will enable merchants and retailers to maximize revenue, optimize investments, and reduce expenses. It’s a data-driven financial panacea. And as such, adoption of Commerce.AI’s SaaS platform should grow by leaps and bounds over the next several years.
How Big Could This Company Get?
Realistically, I think Commerce.AI has an opportunity to be a roughly $5 billion company within the next decade.
In its marketing materials, Commerce.AI continually references the $40 billion addressable market for business intelligence. That’s a good starting point. But, this area is so new (no one is turning unstructured online data into actionable market research right now), that I think you have to dig deeper than that to see where this company can go.
There are over 200,000 employer businesses with over 20 employees in the U.S. retail and wholesale trade, accommodation, and food service industries. These are the companies which have a clear need for Commerce.AI’s software solutions.
Already, some of the biggest companies in those industries — like Walmart (NYSE:WMT), Coca-Cola (NYSE:KO), and Unilever (NYSE:UL) — are customers of Commerce.AI. By 2030, I think it’s entirely reasonable that many smaller companies will follow in the footsteps of these big players, and adopt Commerce.AI’s solutions. Both by choice (some will want to stay ahead of the curve), and by force (some will be forced to adopt data-driven decision making because their competitors are doing it and beating them).
For modeling purposes, I peg Commerce.AI as being able to tap about 10% of its target market, and acquire 20,000 customers by 2030.
Average contract values today hover around $50,000. The likes of Walmart, Coca-Cola, and Unilever will increase their investment into Commerce.AI over the next few years as the platform yields meaningfully positive financial returns. Those contracts will likely rise towards and above $500,000.
But, many of Commerce.AI’s smaller businesses will have smaller contract values. Most customer growth over the next decade will come from these smaller customers, largely offsetting contract size growth from bigger players. Net net, average contract value across the whole business in 2030 will likely hover around $50,000 on an annualized basis.
The math here is pretty easy.
20,000 customers. Average annual revenue from each customer of $50,000. That gets you to $1 billion in revenue. This is a SaaS business which should operate somewhere near 80% gross margins. Assuming moderately aggressive expense growth, my modeling pegs the expense rate at 50% by 2030, implying 30% operating margins, and $300 million in operating profit.
Take out 20% for taxes. You’re left with $240 million in net profits. Throw a technology sector-average 20-times multiple on that. You arrive a potential future valuation for this start-up of almost $5 billion.
What Are the Risks?
Needless to say, a start-up tech investment with 20,000% potential upside doesn’t come without risks.
First, gathering, processing, and analyzing unstructured data — and turning that data into actionable insights — is incredibly difficult to do. Commerce.AI’s bread-and-butter is doing just this. And they have an incredibly talented team working on it, headed by MIT and Stanford grads. Still, it’s a tall order, and much of the success of this business is dependent on the company’s ability to continue to successfully process and analyze unstructured data at scale — which isn’t a sure thing.
Second, competition in this market will increase with time. I fully expect AI-powered market intelligence services like Commerce.AI to represent the next big wave of hyper-growth B2B SaaS businesses. At present, Commerce.AI doesn’t have the scale, reputation, or brand equity to successfully thwart new market entrants. That may come, with time. But at present, AI-powered market intelligence is a wide open market.
Third, because of stiff competition, even if Commerce.AI does ride secular industry tailwinds to huge revenue growth over the next decade, there’s no guarantee that big profit growth will follow suit. Yes, this is a high gross margin business. But, big competition means Commerce.AI may have to spend big marketing, research, and product development dollars to stay ahead of competitors. That will lead to elevated opex rates and compressed net profit margins.
All equity crowdfunding investments — as is true for all start-up investments — are high-risk, high-reward investments. That same is true for Commerce.AI.
However, because Commerce.AI is attacking a huge market with a compelling solution and already has early traction in on-boarding big customers, the potential upside potential in Commerce.AI is enormous, while the downside risks are relatively mitigated.
As such, for long-term, risk-seeking investors looking for a potential home run hit in the B2B SaaS space, I’d recommend taking a close look at Commerce.AI’s fundraising round on StartEngine.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.