At the start of the year, I wrote a wire called 'Would I lie to you? The 6 company mistruths to be wary of...' on the 'overly optimistic' figures from company management. The companies I called out are now down 25% on average, but there is one outlier on the list that has done quite well.
- Getswift Limited: - 86.6%
- YPB Group Ltd: - 65.6%
- Buddy Platform Ltd: - 48.8%
- Gooroo Ventures Ltd: + 8.7%
- Oncosil Medical: +12.5%
- Livetiles Limited: + 30.1%
The one stock that has bucked the trend has been Livetiles (ASX:LVT). Admittedly, I have been negative on this stock (and wrong) for a long time. Indeed I owe a stockbroker a fancy lunch for being on the wrong side of LVT’s galloping stock price – which may cost me more than having actually been short the stock.
LVT is a New York based Australian software company closely aligned with Microsoft. LVT’s software is subscription based and sits over the top of platforms such as Microsoft’s Sharepoint, making its interface more user-friendly. (I think anyone who has used SharePoint can see the advantage of that).
Hence my hesitancy does not stem from the utility of the end product, it simply comes from old-fashioned number crunching.
Here are the facts:
After their $25m placement today LVT will have almost 550m shares on issue, valuing the business at more than $350m.
Despite last month LVT boasting that “annualised recurring revenue (ARR) reached $15.0 million as at 30 June 2018, up 275% in FY18”, actual revenues, according to the 30 June 18 cash flow statement, amounted to $6.9m, credibly up 155% on the prior year, but certainly less impressive than the headline numbers suggest.
Even more astonishing was the company’s costs in FY18, totaling a whopping $22.5m (versus $8m in FY17).
It’s no surprise then that the company is coming back to the market, cap-in-hand, just 6 months after raising $23m.
This company is like the proverbial monster; the more you feed it, the more it eats.
Now, I may continue to be wrong on this company, but my abacus says that a business burning through almost $18m a year, and producing revenue of just $6.7m... is not worth $350m.
As always, the market will decide.
(Note: The Cyan C3G Fund does not short stocks and will gain no beneficial interest in the price movement of LVT.)
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Enjoyed that one Dean, thanks for the follow up article.
Sounds like a small version of Tesla.
Actual FY17 revenue was $1.769m if they hit FY18 revenue of $6.9m that would imply a growth rate of 290%. Also in a fast growing company like this, revenue will lag ARR by approximately 6 months.
Hi Dragan, I've been crunching my numbers from the 4C cashflow statements which do differ from the revenue figures in the P/L. Given the 4C in FY17 was $0.9m above the P/L revenue, it will be interesting to see what discrepancy there is in FY18 when LVT's P/L is reported in the coming weeks.
Dean - after reading an article like this and also others along a similar line, I wonder if there’s another “tech wreck” around the corner. Shares prices and market cap defying gravity, cash flow break-even and profitability not obvious, etc.
Hi Dean, I think you should revisit this potential investment. LVT is the largest company in the space, about 4X the size of next closest competitor (by revenue) and has been growing at more than a 100% compounded annual growth rate (CAGR) across the last 3 years. This strategy has supported the company in claiming the early mover advantage. By taking early market share, LiveTiles is building the strongest defensive position that will become hard to beat. Growth has been achieved primary organically, but, complementary acquisitions have also been used to knock out competitors. In February 2019, LiveTiles acquired Danish digital workplace software company Wizdom for a total purchase price of EUR 30 million (approximately A$47.6 million). The company has a strong focus on product innovation, including in artificial intelligence (e.g. website chat bots) and has close alignment and a unique global relationship with Microsoft. LVT are targeting a ~ $13 billion addressable market of ~300k potential customers in which each 1% market penetration equals ~$130m ARR. The company is not currently cashflow positive, however, LVT has shown consistent improvement in net operating cash flow across the last 4 quarters (Q1-FY19 to Q4-FY19). At this stage of the evolution of the company, we would prefer management focus on market leadership and accelerated growth rather than cash-flow positive operations, which will naturally follow in time give the very high levels of customer retention. The company is targeting 60% per annum growth to get to approx $100M annual recurring revenue (ARR) by June 2021. If they achieve that target, it is not unrealistic to assume a valuation greater than 12x ARR. This would be in line with a company growing at that rate in a vertical with over $8 billion TAM (Total Addressable Market). That would suggest a target valuation of approximately $1.2 billion, which is ~5x the current share price (860 million shares on issue). I have entered at an average entry price of 26 cents. T.E.P.