Strong Growth Fueled by Wal-Mart

Author: John Honovich, Published on Nov 26, 2010

March Networks turned in its best growth rate in a number of years, fueled by sales growth to Wal-Mart and another major customer. For calendar Q3 2010 (their fiscal year Q2 2011), March Network's revenue grew 32% year over year. However, March is forecasting a more modest 10% revenue growth over the next 6 months.

The source of the growth is almost entirely from 2 major accounts. This can be seen when reviewing their quarterly call slides. Wal-Mart sales were 25% of March Network's entire quarterly revenue. A second (undisclosed but likely banking) customer accounted for an additional 10% of total revenue. In the corresponding quarter from last year, Wal-Mart's percentage of revenue was only 16% and the undisclosed customer only 2%. These 2 customer's revenue contribution essentially doubled over the last year rising from $3.8M CAD to $9.9M CAD, or an increase of $6.1 Million CAD year over year. Compare this to March's overall year over year growth of $7 Million CAD.

Wal-Mart's role is a particularly interesting one. On the one hand, as a huge surveillance customer, Wal-Mart can be a major boost to a vendor (e.g., Wal-Mart bought over $7 Million CAD just this quarter). On the other hand, such a large percentage of sales makes the vendor vulnerable to shifts in Wal-Mart's buying patterns. For instance, in 2006, when March disclosed that Wal-Mart was using a second surveillance supplier, their stock price (and revenue) suffered.

For March Networks, though, this looks to be good news as, at least for now, Wal-Mart is increasing purchases of their products. This may be correspondingly bad news for Verint who is widely known as the 'other' supplier for Wal-Mart. In Verint's Q1 and Q2 2010 financial results, they cited an unnamed major customer whose sales were decreasing year over year. We do not know if this is Wal-Mart but it might be.

One other interesting element in March Network's results is the disclosure that they sell direct to Wal-Mart. For industry insiders, this is likely not surprising. However, it is a debated aspect of the surveillance business with lots of opposition from the channel. On the other hand, Wal-Mart is somewhat unique due to its massive size and negotiating expertise.

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