GLG s-1 Analysis
GLG, the largest player in the insight network industry, filed an S-1 last week, revealing its over $600M revenue in 2021 and over $400M dividends paid last year. These are outstanding numbers for a private company whose primary service is manually matching people with investors for one-hour calls. As a direct competitor, I read and analyzed the document in-depth, and I’m happy to share some of my opinions on this amazing company.
This post reflects solely my own opinion and is not by any means intended to serve as financial advice
GLG, Gerson Lehman Group, was founded in 1998 with an ambitious vision of selling primary insights to investors by connecting them with subject matter experts for one-hour calls. You can argue that GLG was the first “gig economy” company, in which people can sign up for their network and monetize their knowledge as a side job. It took them a few years to become a market leader of an industry that they basically created, known today as “the expert network” industry. GLG’s entire operation is executed manually with almost no technology, but their value to clients is so tremendous, enabling them to turn their matching service into a “must-have” for every fund and consulting firm. Today, the total yearly revenue of the expert network industry is estimated at around $1.5BN, meaning GLG alone controls almost half of the market. AlphaSights, the second-largest company in the industry, generates around $250M a year.
The founders, Gerson and Lehman, have not been working at GLG for almost a decade, but they still jointly own 12.6% of the company (6.3% each). The financial statements also reveal that in 2015, SFW, a private equity firm, made a great bet on GLG when they acquired 43% of the company for $212M. They’ve already returned this investment with a positive multiple by paying dividends over the years, and the upcoming IPO will likely more than triple their last valuation.
GLG’s main business model is simple: an annual subscription to their services with a limited number of calls per year. The average hourly price for a call in the market is around $1,000, while the expert gets on average $250. GLG facilitates almost a million interactions a year (!). They have other revenue models as well, but the subscriptions model is their main source of income (90%). The company’s 75% take rate from a call is very high, especially compared to tech companies’ take rate for gigs — the public benchmarks I used are Fiverr and Upwork (27% and 13.5% accordingly). The main difference between these companies and GLG is the platform. GLG’s operational bottleneck requires an account manager for each client; this account manager manages analysts who coordinate the call between the client and the expert. Whereas Fiverr and Upwork enjoy a seamless marketplace operation.
After interviewing dozens of former GLG employees for Xperiti, I realized that the best way to emphasize the extent of their manual operations is by reading their employees reviews on Glassdoor, one example: “The work is extremely mundane and you will use no brainpower” (Link for many more similar reviews). Having said that, GLG has 8-figure annual contracts with fortune 100 companies, these clients require more personal support and success than the average user of Fiverr or Upwork.
GLG has only ±2,700 clients; these clients alone will pay over $600M in 2021 for GLG services. On average, each client has 22 users, meaning each user is worth over $10K to the company per year. I see these figures as one of the biggest existing opportunities in the market today- democratizing the expert network service, enabling hundreds of thousands of new clients to access expert network services. I believe that this will dramatically increase the revenue in the industry.
Below is a quarterly graph that shows the Average Revenue per User (ARPU) over the last two years, along with the number of active users (users who engaged in interaction in the last 90 days). The first grew by 10% in that period, while the latter grew by 15%. Combined, the total revenue per quarter grew by 25% over these 10 quarters.
Between November 2020 and September 2021, GLG paid over $450M in dividends to its shareholders. However, the majority of this amount was financed by a large 6-year loan, a move which is usually made by cash-cow companies and not growth companies. While there is no doubt that the company is doing very well, I believe this move reflects the main problems of the company- product and technology.
To strengthen the company’s direction towards a cash-cow strategy, I broke down the operational costs out of the revenue. Between 2019 and 2021, the operational and support costs were stagnant, around 25%, meaning they haven’t implemented any technology or product interface optimization into their labor force. Their management and board are very conservative, although they’ve stated several times in the S-1 that they are innovative and are investing a lot in R&D — the company’s actual financial investments in R&D are minor and they haven’t made any acquisitions in the last few years, while the competitors, VisasQ, recently acquired Coleman research for $100M, and strategically invested in a startup, Deepbench.
The following graph breaks down GLG’s operational costs between 2019 and 2021.
GLG is a unique service company with great potential and a lot of opportunities to grow horizontally and vertically. They enjoy a strong brand they’ve earned, which creates stickiness among their clients- over 40% of their clients are subscribed for over 5 years. Still, they declared (in the footnotes) that they have recently lost a $34M contract to a competitor, so the brand won’t last long without strong advantages. As a startup aiming to disrupt the industry with technology and eventually become the Netflix of this industry, the financial statements support our thesis that technology is necessary.
