Mopoke Cloud - October 2021
We look at the biggest winners and decliners, as well as some things we found interesting for specific companies.
The Mopoke Cloud Index - made up of 90 emerging technology leaders on the ASX - was up 2.2% in October (slightly ahead of the ASX 200 up 1.9%).
October's rundown:
Prophecy (+105%) signs big US contract, doubles market cap and raises $8m
Ansarada (+58%) acquires TriLine to expand recurring product suite
Camplify (+27%) consolidates NZ market and accelerates international growth
Keypath (-18%) outpaces forecasts and catches up to peers in Rule of 40
Limeade (-13%) becomes one of the cheapest companies in the index
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Top 10 Gains in October
Prophecy (+105%) signs big US contract, doubles market cap and raises $8m
The $80m company operates two products - eMite (call center dashboards) and Snare (cybersecurity)
An exciting October saw the company sign a $5.5m contract with Humana (a large US health insurer) provide a bullish outlook to the market and then raise $8m
What we like? 👍
Growth: ARR has grown $4m in FY18 to ~$14m today … almost entirely driven by eMite. Call centers played a vital role during the pandemic which no doubt supported increased demand
Momentum: eMite ARR crossing $10m, new customer wins, expanding ACVs ($150k, up 8x) and big wins in the US - momentum is strong
What are we watching? 👀
Product strategy: floated in 1997, Prophecy has twice bought then sold software businesses that didn’t work out (Basis 2, Promadis). Today, there is little crossover in their two product lines and eMite is where the value is. Divesting Snare (a low growth $2m ARR segment), could provide a much clearer story and financials
Expectations management: eMite was acquired in Oct 2015 for $17m (~75% stock) when Prophecy traded for $120m ($2 per share). Their FY16 revenue forecast of $20m came in at $15m, and strong eMite growth since then has been clouded by ‘legacy’ and Snare performance. That said, long term shareholders could finally be entering their slope of enlightenment from the acquisition
Ansarada (+58%) acquires Triline to expand recurring product suite
The $170m company provides deal room software, and announced the acquisition Triline for $5m
A sound acquisition and aligned with Ansarada’s stated strategy - adding adjacent products in governance, risk and compliance management - to up-sell into their customer base, increase recurring revenue and ride the ESG wave
What we like? 👍
Big investments in product: low cost, easy to implement, deal software in the hottest M&A market the world has ever seen should be like shooting fish in a barrel, and Ansarada is investing big - with $15m invested in product development last year (43% of their revenue!). We’d expect it to be high given the product led growth strategy, but this is one of the highest in the Mopoke Cloud Index (mature SaaS companies average 7 - 12%)
What are we watching? 👀
Cross-sell and recurring revenue: Although the M&A boom may suggest otherwise, large financial transactions are generally one-off - meaning clients turn it off when they don’t need it. Triline helps Ansarada change this by adding an recurring offering to their target customers
Retention rates: Ansarada stopped reporting customer retention in July 2021, which doesn’t suggest its heading in the right direction or support market confidence. In Q1, they invested $2m in marketing to add 100 customers (pegging CAC at $20k). Customers pay just over $1k a month with 96% gross margins, putting CAC payback around 20 months… but without understanding retention, it's hard to pin down the lifetime value of those customers 🤔
Camplify (+27%) consolidates NZ market and accelerates international growth
The $140m company announced the acquisition of two smaller operators in NZ for $7m in stock
We wrote a deep dive on Camplify in August - Why the AirBnb for Caravans has a long way to run 🚐 and recent results support our thesis
What we like? 👍
Increasing scale: While small acquisitions, Mighway and SHAREaCAMPER add 900 RVs to the Camplify platform, start a strategic relationship with Tourism Holdings and makes Camplify the only NZ operator at scale (Aussies represent ~40% of tourists to NZ)
Growing Marketing spend: Camplify invested $1.4m in marketing in Q1 FY22 - equal to the whole FY21 marketing budget. With such healthy unit economics from their high take rate and contribution margin - they are ramping up quickly and can afford to pay up for more owners and hirers
What are we watching? 👀
International growth: with Australia & NZ in widespread lockdowns, Q1 growth of >100% was led by the northern hemisphere where gross transaction volume grew 152% in the UK and 20x in Spain (albeit from a low base). Building local inventory networks with a strong global brand is going to be key for Camplify’s long term success in retaining active travels globally
US competitive dynamics: Competitors are getting cashed up across the board as the RV rental industry continues to ride to pandemic recovery. Outdoorsy raised $120m following strong growth in their core RV and RV insurance business, and RVshare raised $100m last year from KKR
Top 10 declines in October
Keypath (-18%) outpaces forecasts and catches up to peers in Rule of 40
The $480m education technology company partners with universities to deliver online programs
While on track to beat Prospectus forecasts, the share price is down 20% since their June listing
PE firm Sterling has owned the company since 2013 and retains 60% of the equity, leading to low liquidity and expectations that they will sell into a rising share
What we like? 👍
Online Education Thematic: as we highlighted through OpenLearning in our September 2021 update, traditional education is moving online and Keypath has long term contracts (average >8 years) with 40 of the world’s 600 key higher education institutions
Contribution margins: Keypath takes 40% - 60% of tuition paid by students in the online programs. This is high. But they invest a tonne in the recruitment and marketing of students into programs - 50% of Keypath’s 600 strong team is in marketing and recruiting. Contribution margin doubled in FY21 from 12% to 26%, and moved to 29% in Q1 as more programs continue to mature
What are we watching? 👀
Speed of the flywheel: to run the programs, Keypath must win the university, develop the program, recruit the students, deliver the program and make the margin…. then programs mature and cease taking new enrollments. To date, programs have taken 3 years to recover the total cost. These are long cycles and it’s hard to get a read on underlying unit economics on the large, more recent vintages
Rule of 40: outside of Janison, education tech on the ASX hasn’t seen any major breakout successes in recent years. Keypath is managing the growth vs profitability trade off well - growing 39% and only burning 10% of revenue - giving them a Rule of 40 inline with Janison although behind Cluey and ReadyTech
Limeade (-13%) becomes one of the cheapest companies in our index
The $100m employee experience software provider announced the loss of American Airlines ($2m ARR) in late September but painted a brighter outlook in their October results
What we like? 👍
Market thematic: employee well-being is in focus and getting a budget from CFOs. Elmo, a HR tech peer in the Mopoke Cloud Index, announced a new product module on Experiences to enhance employee engagement within organisations (along with 35% organic growth in their core business). This is Limeade’s bread and butter and they should be ahead of the wave.
Contractual outlook: subscription revenue visibility remains strong, with the top 20 customers having an average 19 months remaining (versus 17 months at Q2 2021). This should help mitigate any big surprises in the short term as companies recovery from the pandemic
What are we watching? 👀
Retention numbers: net dollar retention hasn’t been great. 98% at IPO in 2019, declining to 93% and now 84% following American Airlines departure. This highlights the importance of HR platforms managing mission critical process - which we wrote about in our piece on PayGroup: How sticky payroll provides air-cover to expand margins 💵
Market sentiment: with $70m in high margin ARR and a $100m valuation - has short term sentiment swung too far on Limeade? The stock is down 70% since listing in late 2019, and at only 1.6x ARR is the cheapest HR technology company amongst peers and one of the lowest valuations in the Mopoke Cloud Index
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