SPS Commerce, Inc. (SPSC): A Bull Case Theory

SPS Commerce, Inc. provides cloud-based proviso concatenation absorption solutions successful the United States. For much than a decade, SPSC was viewed arsenic a textbook small-cap compounder, consistently increasing revenue, expanding margins, and maintaining precocious lawsuit retention, which justified a premium valuation that often exceeded 40x EBITDA. That cognition changed abruptly aft the banal fell astir 60%, forcing investors to reassess whether the institution is simply retired of favor or structurally impaired.

At its core, SPS operates a cloud-based retail proviso concatenation level that connects retailers, suppliers, and logistics providers, enabling standardized and automated papers speech done EDI and different protocols. While EDI is often labeled antiquated and susceptible to API-first disruption, SPS mitigates this hazard by remaining protocol-agnostic and embedding itself profoundly into established workflows. Retailers request strict compliance, suppliers request entree without customized integrations, and SPS acts arsenic the captious intermediary, resulting successful a sticky, subscription-based exemplary with debased churn and recurring revenue, which historically supported its premium multiple.

The company’s strategical misstep came with the early-2025 acquisition of Carbon6, a costly propulsion into the Amazon seller ecosystem. Although the woody was framed arsenic a mode to go indispensable infrastructure for Amazon sellers, consequent changes to Amazon’s marketplace rules undermined the economics and highlighted a cardinal asymmetry: Amazon does not request SPS, portion SPS depended connected Amazon’s stability. While the acquisition is not balance-sheet threatening, it raises concerns astir absorption judgement and imaginable impairments.

Fundamentally, SPS remains a coagulated business, having delivered a 19% gross CAGR implicit 5 years, humble borderline expansion, and a cleanable equilibrium expanse with nett cash. However, its valuation has compressed sharply to astir 12x EV/EBITDA. The caller engagement of activistic capitalist Anson, pushing for a merchantability to unlock value, adds different furniture of uncertainty, peculiarly for semipermanent investors who antecedently viewed SPS arsenic a durable maturation compounder alternatively than a near-term worth realization story.