Hi iivans, 8K Miles’s business is cloud based migration solution plus services to maintain the solution for their DLP warranty. So, they might be getting paid on a monthly basis for managing the client’s cloud solution. 8K’s business is different other IT firms you had mentioned.
Well said and explained.
Dhruva, the revenue is generated in the US by its subsidiary company (since more than 70% salary are generated there) and we don’t have its results or balance sheets. The salary might be accounted in their US subsidiary. Read somewhere that they have about 625 employees, but not sure how many are in the US and in India.
I still don’t understand the reason for this huge surge. A former director selling stake should have been treated as a negative but is the market is happy about it? puzzling!
@Prash: Shouldn’t the fact that “managed service” segment constitute about ~30% of the revenue and growing at 100%+ give comfort on the aspect that “8k Miles is building deep relationship with customers”. If the revenue had come only from a) “Consulting” and b) “Cloud Migration” streams, it would indeed have created question marks on 8k Miles ability to engage with clients post consulting and cloud migration is over but that doesn’t seem to be the case.
Flipping the question to “Why would a client even think of switching or what are the incentives for a client to switch to a different provider after initial set-up/migration from the first service provider.”
I believe there are natural lock-ins in IT industry/Cloud Migration and clients generally tend to stay with vendors/service providers for years unless there is serious breach of SLAs. In this industry, Moat gets created from first mover advantage (resulting from switching costs) rather than superior execution/technology skills.
- how frequently have you seen clients switching to second vendor for management services after initial set-up on cloud (or IT infra in old days) ?
- what are the factors that have led to switching (e.g. 5%-20% of cost advantage)
It’s not very common for clients to switch IT providers unless there are big issues in service quality. Whenever, pricing is an issue, clients are able to renegotiate rates in most cases.
In some cases clients prefer in-house team to manage cloud infrastructure as it does not require a many people, especially, if they already have a technical team in place. Saves them management overhead.
It is still not clear me as to what exactly is the differentiation or moat for 8K miles compared to other bigger IT companies.
Is it :
- Trained manpower for Cloud services - Probably its not very difficult for IT biggies to train people on these technologies or poach the right people.
- Better pricing compared to others - Is there any cost advantage that 8K miles has that others cannot match the lower price?
- Any specialized solution that they have developed inhouse - For example, have they developed some auto-bots or a solution in-house that makes it easy to migrate the clients to cloud?
- First mover advantage with existing clients : This could be true with existing clients, but I do not think they can keep growing at this pace from only existing clients.
- Anything else ?
Would love to hear from the members about their views.
Discl: Invested a small amount in 8K based on the high potential of cloud business, but am not sure about the moat of 8K miles.
I understand from an employee of 8K Miles, that 8K has the capabilities of
doing cloud migration which are complex and which the IT biggies give up as
not possible. And then 8K ask for their price and get it. Being small, they
end up giving a more than necessary credit period for the customers which
ends up in a somewhat elevated receivables days.
Their IAM solution seems to be a differentiated one (I say this because Oracle seems to be the customer for 8k miles’s IAM Security solutions).
Also, on cloud migration and management front, they have created platforms for auto/faster migration and system management/maintenance based on AI/ML.
Yes. They claim to have a first mover advantage in Pharma and Healthcare vertical. This seems to have created a set of big referenceable clients which has probably resulted in easier acquisition of more clients, apparently creating a virtuous cycle.
Also, I would probably classify the platform and solutions as differentiation and not necessarily a moat.
Thanks @dheegarg. This is helpful in understanding the stickiness part.
I also wanted to get your thoughts on the below point:
If a prospective client (let’s say in pharma vertical) is approached by two competing cloud/IT vendors:
- a small vendor with cloud domain expertise and good set of referenceable clients in pharma/healthcare vertical (e.g. 3 out of top 5 pharma and top healthcare providers)
- a big IT/cloud vendor with no domain expertise in pharma/healthcare
What are the odds of the the small vendor winning the new client ?
Basically, I want to understand whether the leadership position & a strong set of referenceable clients in a specific vertical provide some sort of competitive advantage to the vendor during acquisition of new clients in that vertical (kind of network effect) - this advantage, if any, will actually grow stronger over a period of time.
Consider two scenarios:
Scenario 1: Prospective client does not outsource or has a vendor who does not have any cloud experience. In such a case, domain and technical experience along with multiple referenceable clients is a strong factor (though there are many other parameters as well) for vendor selection.
Scenario 2: Client has existing long term relationship with another vendor, and who also has considerable experience in cloud, even if lesser in specific context. Here the game will be very different. Incumbent will try very hard to not let in another vendor, as this may impact future projects as well. They already have relationships with decision makers and can play the pricing game much better.
To summarize, it is not going to be easy for 8K miles to get large customers as they would already be working with multiple vendors or will have their own in-house team.
Two scenarios you described make good sense.
But then, I am wondering as to what could be the reason for 8k Miles gaining strong foothold with large customers. 3 out of top 5 pharma customers are working with them (*Source: video link below from 4:00 onwards). Top healthcare companies (sutter health, hawai pacific health, blue cross blue shield, shire pharma … as described above by Gaurav) are working with them. And every quarter or two, they seem to be acquiring 1-2 fortune 100/500 companies.
That’s a good question We should try to figure out what is their competitive advantage - better service, price, speed, reliability?, and how are they getting this advantage. Further, is this sustainable.
If we can figure this out, we can get conviction in investing in this stock.
Disc. Not invested in this company.
Another thing to be checked, were these large customers added organically or existing clients of their acquired companies.
They acquired Cornerstone,earlier this year which has many existing client in pharma space. (I did a project for Cornerstone many years back)
Thanks Naz and Vetri for replying.
So I think the differentiator seems to be the in-house solutions that they have developed. Though I think most companies are working on AI/ML solutions and could catch up. So this may not be very sustainable for long.
Also, we need to see if the clients have been acquired directly by 8K team or were part of the client list of the companies that they purchased.
Finally, Ambit Capital had one-on-one meeting with 8k Miles today.
Let’s see if it will issue an updated report.
Shame on Ambit and its analyst that they did not had courtesy to join Mumbai meeting.
Why any analyst would not join a public meeting called by company and clarify the red flags raised in front of whole community? Analyst community can vet the concerned raised then and there.
Also they have used lofty language in the report and tried to discredit a company.
Not that it is related with 8K. I have seen one of their prominent analyst crying over-valuation on television regularly as Nifty scaled from 6.5k to 10k.
Disclosure - Views may be biased.
Ambit has every right to predict the direction of the market. It was Ambit
who correctly predicted the market going down from 9000 to 7000. The data
points and reason they give are important. And the data points they give
are true and factual. That is what matters when we see all around a few
people holding responsible positions giving selective data to prove
something right when the data in whole is bad.