Blackbaud Stays Ahead With Cloud Push

Rodney Nelson: By addressing a small niche in the customer relationship management software market, Blackbaud has carved out a wide economic moat. Blackbaud is the largest provider of CRM software to nonprofits and charitable organizations in the world, and the company has taken steps over the last several years to stay ahead of the curve.

Most notably, Blackbaud is actively engaged in migrating its customers to its cloud-based software products, including Raiser's Edge NXT and Financial Edge NXT, the company's flagship customer relationship and financial management software platforms. While these migrations can have negative near-term effects on revenue and profitability, we are seeing evidence that Blackbaud's business is turning the corner after several years of investment in both its software and its salesforce. We suspect just under one third of the company's 35,000 customers are utilizing Blackbaud's cloud solutions, a rate we expect to grow consistently over the next several years, bringing expanded profit margins along with it in the long run.

While Blackbaud has a more than 6-to-1 revenue lead over its nearest competitor, the firm must stay on top of technological advancement in the CRM space, particularly given the presence of Salesforce.com in this vertical. Still, we think Blackbaud's business embodies the enviable position of big fish in a small pond, and we believe the firm is poised to generate strong returns on invested capital over the long run.