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Avalara has great IPO; is King of Prussia's Vertex keeping pace?

Tom Paine

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Seattle-based Avalara began trading yesterday following its IPO, and the offering was quite successful for the tax software company. Shares closed up 87 percent at $44.94 after opening at $35. Shares were priced at $24 in the company's $180 million IPO on Thursday. It ended up with a market capitalization in excess of $2 billion.

Revenue in 2017 climbed 27 percent to $213.2 million, though Avalara continued to lose money - $64 million.

Much like subscription billing services such as Zuora, Avatar depends heavily upon transactions, particularly in the rising digital economy. Avalara see its current US TAM (total addressable market) as being in excess of $8 billion.

Avalara CEO Scott McFarlane, who co-founded the company in 2004, told CNBC's "Squawk Alley" on Friday that in the next seven to 12 years, sales tax will have to be entirely automated.

Avalara CEO: We want to be a part of every internet transaction from CNBC.

The last revenue figure I've seen for Vertex was "in excess of $200 million", according to then-CEO Jeff Westphal two years ago. Vertex has 1,000 employees on LinkedIn; Avalatra has more than 1400 employees. These two aren't alone in the market; a Thomson Reuters unit, OneSource, and CCH are also players.

My sense of the matter is that Avalatra has been aggressive in attacking the boundaries in the enterprise tax software market, while Vertex had been more cautious. Vertex may have some catching up to do in the enterprise and international markets where Aavalara is strong.

Vertex had made some significant changes in recent years. Headquarters has moved from Berwyn to King of Prussia; Jeff Westphal turned over the CEO job to David DeStefano; it shuttered an income tax prep business in Florida; and expanded its Cloud Platform and capabilities.

Whether Vertex can or needs to go public in the near future is something I don't know; but the controlling Westphal family may need to expand or alter its capital structure to compete in an amped up market, perhaps yielding some control. Another outside possibility is hooking up with a company like Zuora.

One other point I found interesting: Vertex has a close relationship with Oracle , and Vertex' cloud is powered by Oracle.