We came across a bullish thesis on Crexendo, Inc. (CXDO) on Ahead of the Curve’s Substack by Sam McColgan. In this article, we will summarize the bulls’ thesis on CXDO. Crexendo, Inc. (CXDO)'s share was trading at $5.27 as of Nov 11^th. CXDO’s trailing P/E was 105.40 according to Yahoo Finance.

A telecommunications tower in a rural setting, showing the reach of cloud telecom services.

Crexendo ($CXDO) holds a dominant position in the Unified Communications as a Service (UCaaS) market, benefiting from strong industry growth, high-quality recurring revenue, and expanding margins. The company offers a cloud-based platform that integrates communication and collaboration tools, targeting enterprises and service providers. As the third-largest UCaaS provider, Crexendo has gained market share from competitors like Microsoft and Cisco, both of whom have de-emphasized their UCaaS offerings. The company’s platform is highly rated by users, with NetSapiens, its licensee-facing platform, achieving a retention rate of 99.8% and enabling cost savings of up to 40% for licensees. Crexendo's user base has tripled since its acquisition of NetSapiens in 2021, reaching 5 million users as of August 2024.

With the UCaaS market projected to grow at a 10% annual rate in the U.S. and 15-20% internationally, Crexendo has a significant runway for expansion. Its international business, which is growing at 74% year-over-year, presents an especially strong growth opportunity, fueled by lower penetration compared to the U.S. Crexendo has successfully secured new clients in Europe, MENA, and APAC, and its gross margins have surged to 72%, up from around 50% in 2021, with further margin expansion anticipated from cost-saving initiatives, such as moving data center workloads to Oracle's cloud by 2026.

The company’s balance sheet is stellar, with $15.5 million in cash, negligible debt, and significant net operating losses (NOLs) to offset future tax liabilities. This positions Crexendo to fund acquisitions, which are a key part of its growth strategy. The company targets acquiring up to two businesses annually, typically with revenues around $10 million, and expects these acquisitions to be accretive within 1-2 quarters, offering substantial cash flow margins over time.

Crexendo’s leadership team has a strong commitment to the company, with insiders holding a substantial 56% ownership stake. The largest shareholder, Steve Mihaylo, owns 42%, ensuring that management’s interests align closely with those of shareholders. This alignment has contributed to Crexendo’s careful yet steady growth trajectory. While some risks remain, such as cybersecurity threats or the unlikely event of Microsoft and Cisco re-entering the UCaaS market, these are considered to have a low probability of materializing.