Undervalued Tech Stock Eyes 30% Upside in Nonprofit Niche

Author

Adam Garcia
April 23, 2025

Undervalued Tech Stock Eyes 30% Upside in Nonprofit Niche

Blackbaud (NASDAQ: BLKB) stock has dropped over the past few months, in part due to sweeping Federal budget and administrative cuts targeting a handful of its non-profit clients that USAID previously funded. 

But don’t sleep on this social good software stock - an underserved niche sets it apart from larger competitors like Salesforce (NYSE: CRM). At the same time, its targeted acquisition strategies and forward-thinking tech innovations will continue to drive growth. Better yet, trading at a slim 15x normalized earnings, Blackbaud is materially undervalued considering the company’s unique position.

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Operational Strategy and Positioning

Headquartered in Charleston, South Carolina, Blackbaud develops software-based solutions for a range of nonprofits, foundations, and charity organizations. Major clients include Habitat for Humanity and the Ronald McDonald House. It also works with university philanthropic wings at institutions like the University of Georgia and the University of Maryland. The company has recently expanded its scope to support day-to-day operations for K-12 schools, increasing its total addressable market opportunities.

Blackbaud’s flagship product, Raiser’s Edge NXT, is a customizable fundraising and donor management platform that functions as a specialized, modular CRM for nonprofits. It is often paired with Financial Edge NXT, its accounting and financial management tool. Blackbaud also provides client access to NOZA, the world’s largest searchable database of charitable donors, a proprietary asset that enhances client value and fosters loyalty.

In other words, Blackbaud is a one-stop shop uniquely tailored to the pain points and demands of its targeted niche, allowing it to outperform larger, generalized competitors with a fraction of the marketing and SG&A spend. Likewise, high switching costs help cement its position within client workflows even if a new entrant’s offerings create an operational risk to Blackbaud’s growth roadmap. 

As an end-to-end provider, Blackbaud boasts a particularly sticky customer base with a 90% retention rate and low churn. This reinforces Blackbaud’s sector dominance while providing a reasonable recurring revenue projection tool. Better yet, the company’s proven buyout strategy effectively nips potential competitors in the bud, as seen in its acquisitions of YourCause and JustGiving.

Blackbaud is also embracing the global artificial intelligence trend, announcing in January a unique AI-powered social impact reporting and insights tool designed to “help purpose-driven companies move beyond simply tracking data points to [demonstrate how they] actually improve people's lives."

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Financial Standing

Recent increases in R&D and one-time operational costs, driven by cloud transitions, technology upgrades, and acquisitions, have slightly pressured Blackbaud’s margins. The company has also relied on debt to fund its growth initiatives, resulting in a notable gap between its cash reserves and liabilities. 

However, its consistent revenue growth and recurring revenue model help mitigate default risk. While Blackbaud may need to operate leanly in the near term, its investments are expected to strengthen its market position and drive long-term profitability for investors willing to wait for its new developments to mature.

Outlook and Price Target

Ultimately, Blackbaud’s customer base is sensitive to economic changes, which creates a degree of undiversifiable risk. However, the company’s entrenchment across the sector sets it apart from SaaS peers, while its willingness to innovate distinguishes it from other non-profit service providers. 

BLKB trades at around $60 today, but an upward adjustment toward a more reasonable, industry-standard price-to-earnings ratio, along with a continued ~7% free cash flow yield, pegs its fair value closer to $75-$80 per share.

That’s all for today. Thank you for reading. If you have any feedback, please reply to this email.

Best Regards,

— Adam Garcia
Elite Trade Club

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