SPS COMMERCE INC (SPSC) DCF Valuation & Fundamental Primer
SPS COMMERCE INC (SPSC) currently trades at $90.42 with an enterprise value of $3.73B. Our proprietary institutional model rates SPS COMMERCE INC at 83/100 (Grade: A · High-Quality Compounder). The current market price prices in an implied 5-year revenue CAGR of 15.5% vs. historical growth of 19.5% (Fairly Priced to Fundamentals).
Institutional fundamental teardown of SPS Commerce, Inc. (SPSC) covering SEC 10-K/10-Q cash flow conversion, SBC dilution friction, and Reverse-DCF valuation hurdles.
SPS COMMERCE INC (SPSC) 3-Scenario DCF Valuation Range
Stress-test SPSC's 5-year growth, target FCF margin, WACC, terminal methodology, and SBC/dilution friction in real time.
Split between 5-Year Explicit Cash Flows and Discounted Terminal Value
2D Institutional Valuation Sensitivity Heatmap
Implied share price & upside/downside spread across 25 valuation states (Current Price: $90.42).
| WACC \ Terminal | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 8.5% | $115.55 +28% | $122.54 +36% | $130.71 +45% | $140.35 +55% | $151.93 +68% |
| 9.3% | $104.18 +15% | $109.69 +21% | $116.02 +28% | $123.36 +36% | $131.98 +46% |
| 10.0% | $94.84 +5% | $99.27 +10% | $104.29 +15% | $110.03 +22% | $116.66 +29% |
| 10.8% | $87.03 -4% | $90.65 +0% | $94.71 +5% | $99.30 +10% | $104.52 +16% |
| 11.5% | $80.40 -11% | $83.41 -8% | $86.75 -4% | $90.48 +0% | $94.68 +5% |
Institutional Software Quality Scorecard (83/100 · Grade A)
Strong fundamentals, above-average cash generation, and robust competitive positioning.
Elite deferred revenue float; FCF exceeds operating income by >20%
Disciplined equity compensation well below software industry average
Solid gross margins with potential for operating leverage at scale
Positive net cash cushion; self-funding operations with zero insolvency risk
Core Investment Strengths & Moats
- High-grade cash conversion: FCF is 155% of EBIT driven by upfront annual collections
- Net cash positive: $228.5M balance sheet buffer
Key Operational & Dilution Risks
Reverse-DCF Solver: What Growth is Priced Into SPSC?
Market implies 15.5% annual revenue growth over next 5 years (22.7% dilution-adjusted), in line with company run-rate.
Headline Reverse-DCF ignores Stock-Based Compensation (8.6% of revenue) and annual share dilution (1.0%/yr). Accounting for both requires 22.7% 5-year revenue CAGR to justify $90.42/sh on a true per-share economic cash flow basis.
SPS COMMERCE INC (SPSC) 5-Year Fundamental Forecast
| Statement Line Item | TTM Audited Base | TTM | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|---|---|
| Revenue | $637.8M | $637.8M | $762.2M | $910.9M | $1.09B | $1.30B | $1.55B |
| Gross Profit | $427.1M | $427.0M | $510.4M | $609.9M | $728.9M | $871.2M | $1.04B |
| Operating Income (EBIT) | $88.9M | $88.9M | $106.2M | $127.0M | $151.8M | $181.4M | $216.7M |
| Stock-Based Compensation (SBC) | $54.6M | $54.5M | $65.2M | $77.9M | $93.1M | $111.2M | $132.9M |
| Unlevered Free Cash Flow (FCF) | $137.4M | $137.4M | $164.2M | $196.2M | $234.5M | $280.2M | $334.9M |
| SBC-Adjusted True Cash Flow | $82.8M | $82.8M | $99.0M | $118.3M | $141.4M | $169.0M | $202.0M |
Software & Cloud Services Peer Comparables & Rule of 40 Regression
Rule of 40 vs. EV / Revenue Multiple Regression
OLS Fit: EV/Rev = -27.6 + 0.77 × (Rule of 40) · R² = 82%Stocks below the gold regression line trade at a discount relative to their Rule of 40 compounding efficiency.
| Company | Ticker | Market Cap | TTM Revenue | Gross Margin | FCF Margin | Rule of 40 | SBC % Rev | EV / Rev |
|---|---|---|---|---|---|---|---|---|
| SPS COMMERCE INC | SPSC | $3.42B | $637.8M | 67.0% | 21.5% | 41.1% | 8.6% | 5.0× |
| ServiceNow | NOW | $152.61B | $10.98B | 79.2% | 31.1% | 54.2% | 15.9% | 13.9× |
| Workday, Inc. | WDAY | $50.35B | $8.00B | 75.0% | 27.4% | 43.9% | 19.0% | 6.4× |
| Salesforce | CRM | $217.10B | $37.90B | 77.2% | 32.8% | 42.8% | 8.4% | 5.8× |
| Datadog | DDOG | $46.05B | $2.68B | 80.8% | 31.1% | 57.7% | 21.3% | 17.4× |
| Snowflake Inc. | SNOW | $71.79B | $3.63B | 66.5% | 25.2% | 57.7% | 40.8% | 20.0× |
| Hubspot | HUBS | $19.89B | $2.63B | 85.0% | 21.3% | 52.7% | 19.2% | 7.7× |
| Peer Cohort Median Benchmark (N=6) | 78.2% | 29.2% | 53.5% | 19.1% | 10.8× | |||
EV / Revenue Multiple Compression Stress Test
| Multiple Scenario | EV / Revenue | Implied Enterprise Value | Implied Equity Value | Implied Share Price | Delta vs Current |
|---|---|---|---|---|---|
| Current Multiple | 5.0× | $3.20B | $3.42B | $90.42 | 0.0% |
| -20% Multiple Compression | 4.0× | $2.56B | $2.78B | $73.54 | -20.0% |
| -35% Multiple Compression | 3.3× | $2.08B | $2.31B | $60.89 | -35.0% |
| Software Baseline Floor (5.0× EV/Rev) | 5.0× | $3.19B | $3.42B | $90.25 | -0.2% |
Frequently Asked Questions: SPS COMMERCE INC (SPSC) Valuation
What is SPS COMMERCE INC (SPSC)'s intrinsic DCF valuation and implied share price?
Based on audited SEC 10-K/10-Q filings and a 5-year 3-statement discounted cash flow (DCF) model, SPS COMMERCE INC (SPSC) has a Base Case implied value of $104.51 per share (with a Bear Case of $48.99 and a Bull Case of $181.08), compared to its current price of $90.42. The model discounts projected free cash flows at a 10.0% WACC and a 2.5% terminal growth rate.
What is SPS COMMERCE INC (SPSC)'s Rule of 40 score and Free Cash Flow margin?
SPS COMMERCE INC achieves a Rule of 40 score of 41.0%, combining a 19.5% revenue growth run-rate with a 21.5% TTM free cash flow margin on $637.8M in trailing twelve-month revenue. In the Software & Cloud Services peer cohort, the median Rule of 40 benchmark is 53.5%.
What revenue growth rate is priced into SPSC stock according to Reverse-DCF analysis?
At $90.42 per share (Enterprise Value of $3.20B), our Reverse-DCF solver indicates the market is pricing in a 5-year implied revenue CAGR of 15.5%, compared to SPS COMMERCE INC's historical CAGR of 19.5%. Overall market expectations are rated as "Fairly Priced to Fundamentals".
How does SPS COMMERCE INC compare to Software & Cloud Services software peers?
SPS COMMERCE INC (SPSC) earns an institutional Software Quality Score of 83/100 (Grade A — High-Quality Compounder). Across its Software & Cloud Services peer group (NOW, WDAY, CRM, DDOG, SNOW), the cohort trades at a median EV/TTM Revenue multiple of 10.8× and a median gross margin of 78.2%.
How does Stock-Based Compensation (SBC) impact SPS COMMERCE INC (SPSC)'s valuation?
SPS COMMERCE INC recorded $54.6M in TTM stock-based compensation (8.6% of revenue). When treating SBC as a cash-equivalent compensation expense, SPS COMMERCE INC's SBC-adjusted free cash flow yield is 2.4%, scoring 21/25 on our Shareholder Dilution Friction pillar.