Rimini Street's Sales Issue
Rimini Street has become a big concern for opportunity cost issues
So when Rogue Funds first made our investment in Rimini Street there were a few red flags that I had identified. The biggest red flag was that they were beginning to experience a sales slowdown that has been further exacerbated by a few different things. The other risks were the oracle lawsuits (which I thought could be mitigated by reinvigorated sales growth) and competitors dropping their pricing to compete with Rimini.
Obviously when the initial investment was made I knew about these issues but my concern was regarding sales. I am still not particularly concerned about the lawsuit and if you watch this video: https://www.ca9.uscourts.gov/media/video/?20240605/23-16038/, you will see why I remain fairly bullish. The appellate judge panel were all on the previous appellate judge panel and Rimini won that one as well and they are very familiar with the Oracle vs Rimini lawsuits. Even if Rimini loses it is only 7% of revenue that is impacted. My real issue is with the other two risks that I pointed out: pricing power and sales growth.
Sales Risk is my Biggest Concern
When I first researched them I realized Rimini’s marginal success would be determined by their ability to sell their incredible 3rd party services to individuals who were probably uninformed that Oracle/SAP/Salesforce had a 3rd party competitor or were just content with the maintenance services that they supplied (while they got gouged on prices). Rimini began to find out that their customers wouldn’t choose them because they were unaware of the breadth of offerings that Rimini offered so Rimini begin to sell all of these things (you can view my prior Rimini posts for a better idea of what I mean). This ended up in disaster and sales has floundered since. Their solution is Rimini One which hasn’t had great uptake other than SAP sales last year. Their other issue, as stated by Seth(CEO), was that they have had a very hard time adjusting to the new sales environment post-covid.
So of course I can sit comfortable while a management figures out their issues, I am aware that capitalistic markets are a very dynamically competitive place and you just want to see a long term trend of things moving in the right direction. After flat sales again this past quarter I wanted to see if things are really moving in the right direction. So, I went and began to check out what salesman are saying online and lets say they were not exactly great. I don’t put a lot of weight on these reviews because obviously a lot of people s*** on their boss/company but there were a couple of reviews that really stood out to me as concerning:
The first two comments regarding leadership adapting to the new age is highly highly concerning. This is EXACTLY what Seth said was their biggest problem over a year ago and here we are seeing the exact same problem pop up. These reviews are very hyper specific and cause me concern. The poor training is another issue that has been mentioned by Seth and it is known because they have a very large breadth of technical products that salesman have to understand. Overall my alarm bells were ringing at this and the progress of the company’s sales. I went and checked out their employee growth on LinkedIn and I was seeing borderline zero movement on the sales side.
Competitors are Dropping Prices for Maintenance
Oracle and SAP have cut prices significantly and Oracle is matching Rimini Street now. When you are the value option and customers are already nervous about your Oracle offerings (due to lawsuits) this is a massive hit when you are no longer the cheapest. Apparently Oracle is dropping prices by tying companies into a “teaser rate” on the promise they increase prices into their SAAS model in the future (say 3 years down the line). IR told me this tends to only last about a year historically but this is a serious issue and I figured Rimini had plenty of time to grow until Oracle really began pressing their margins down to compete.
There is some safety
At the end of the day Rimini still has incredible revenue retention and if they win the lawsuit there aren’t (for the moment) any other lawsuits on the table so that would open up quite a bit of earnings. The bottom for Rimini probably isn’t much below this, just based on revenue retention but I think the opportunity cost is too great to sit in this one until management shows proof of their ability to expand sales. Even with a lawsuit win I think upside is only 60%-70% without additional sales. I will keep a very close eye on Rimini but for right now I think it is in our best interest to cut them with a slight gain while adding other opportunities that I think have significantly better potential.
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