Rimini Street (RMNI), the maverick of the enterprise software support world, has long been a controversial figure. Seth Ravin, the company's founder and CEO, built the company on the premise of providing third-party support for Oracle and SAP software, a move that predictably ruffled feathers in the industry. Rimini Street found itself embroiled in legal battles with Oracle, a saga that finally concluded in 2018 with a decisive victory for Rimini Street.

This David-and-Goliath story has captured headlines, but beneath the surface lies a financial narrative that is equally compelling, though perhaps less dramatic. A careful examination of Rimini Street's recent financial data reveals a trend that appears to be slipping under the radar of most analysts: a steady and impressive growth in deferred revenue.

Deferred revenue, for the uninitiated, is a liability on a company's balance sheet that represents payments received for goods or services that haven't yet been delivered. It's essentially a promise to customers, a commitment to fulfill future obligations. In Rimini Street's case, this deferred revenue largely stems from its multi-year support contracts, a key feature of its business model.

While many companies rely on deferred revenue, what's remarkable about Rimini Street is the sheer scale of this growth. Looking at the quarterly data, we see that current deferred revenue has more than doubled since the beginning of 2020, jumping from $179.5 million in Q3 2020 to a whopping $263.1 million in Q4 2023. This signifies a robust and accelerating demand for Rimini Street's services, a testament to the company's growing reputation as a viable alternative to vendor support.

The implications of this trend are profound. First and foremost, this substantial pool of deferred revenue acts as a powerful buffer against economic headwinds. It represents a stream of predictable income that is largely immune to short-term fluctuations in the market. Even if new sales were to slow down, Rimini Street would continue to generate revenue from its existing contracts, providing a level of stability that is highly attractive to investors, particularly in times of uncertainty.

Furthermore, this expanding deferred revenue stream points to the inherent stickiness of Rimini Street's customer base. Once a company switches to Rimini Street for support, they're likely to remain a customer for the long haul. This loyalty stems from the significant cost savings that Rimini Street offers, typically around 50% compared to vendor support, as well as its high-touch, personalized service.

Now, here's the kicker: Despite this impressive financial performance, Rimini Street's stock price remains relatively modest, hovering around $2.60 at the time of this writing. This presents a compelling argument for undervaluation. The market, it seems, is fixated on past legal battles and is failing to grasp the true potential of this hidden gem.

This is not to say that there are no risks associated with Rimini Street. The company operates in a niche market and faces fierce competition from the very vendors it aims to displace. However, the rapid growth in deferred revenue, coupled with the company's proven ability to navigate legal challenges and secure significant customer wins, suggests that these risks are more than adequately balanced by the potential for upside.

Rimini Street's Deferred Revenue Growth (2020 - 2023)

Rimini Street, once a defiant underdog, may be on the cusp of a major breakout. The company's financial fundamentals are strong, its business model is proving to be resilient, and its stock appears to be significantly undervalued. For investors seeking a combination of stability and growth potential, Rimini Street is a compelling opportunity that deserves a closer look.

"Fun Fact: Seth Ravin, founder of Rimini Street, named the company after the street in Las Vegas where he grew up."