Email from Dave (financials), page-7

@Tradewench

my concern isnt really the amount of installs per se - its more the price of the stock for the current revenue + relatively slow growth in the revenue base (which then yes is about installs)

thats why i said i felt investors need to separate the 'company' from the 'stock'.

basically all the forward looking badinage from the company in prior ~15months led the market to price the stock as super high growth rate - much higher than it has proven to be.

while the sp has pulled back - it remains at elevated levels using most metrics - which is why its not performing. its basically been holding steady waiting for the real business to catch up with the stock price

the june qtr $761k qtr sales is $3.044m annualised.

@11c that puts the stock on a 37x price to sales ratio - though $22.3m was cash at 30 june so you could argue its on 30x ex cash

thats a high ratio - ie fully mature very high growth established businesses like saleforce and facebook that are growing their revenues 30-50% pa are typically on 5-10x p/s ratio

its an especially high ratio because the company is on massive negative cash burn. $4.2m for Sept qtr. - annualised around $16.5m.

that is a super high rate of outgoings compared to peers - BID is spending something like $2m a qtr as it goes into its current retail product higher burn marketing campaign

cash burn is a critical item not just because you need cash to operate - but because the whole reason tech stocks get so leniently valued by the market is because they are supposed to have a very low cost of operating. (the idea is sales grow much faster than costs which dont increase much - so 70+% of any added sales fall straight to earnings)

ie if it was a coal stock or an industrial manufacturer or even a semi conductor stock it would generally only get a p/earnings value and then only 5-8x - BUD would be valued around $25-40m on that basis (ie valued for cash + hard assets only)

as i was saying in June to july - what had become clear was speed of income flow wasnt what the company had flagged.

thats why i said that lead up to july was a period to consider size of position - when sp would probably run up to qtr result on hope

as i also said - BUD's actual speed of growth isnt bad in and of itself. its quite good/more than acceptable if a v small company grows revenues by +100% a year.

its just shown Ohm isnt a high demand product to this point but rather one that takes quite a bit of sales effort and a very high spend to generate sales - and thats the key difference - because that isnt what the sp is priced for - and because BUD is spending massively to acquire that growth.

the 3 yr annuity basis of OHM is an added benefit from that - albeit given the contracts in effect can be broken on notice from what id read prior, its not worth a much higher p/s than say BID. Im not mentioning BID for any other reason that its the most comparable local stock ive seen. I dont hold either currently

re DM's points about billing - having read that i simply dont understand why they talked about deferring revenue last june qtr - according to his explanation it hadnt been earnt so why mention it at all.

theyd appear to be better off simply booking revenues on cash receipts - with only a month;s lag it would seem they're going to spend a lot of time on revenue match accounting - + have the issue of receivables continually muddying the picture when there are non performing contracts

but as i said - that was simply a straw - worsening what had become a high level of discomfort as reality failed to match the forward pitch.

the real issue now is to wrestle with what kind of sales the market needs to see to start feeling current sp is justified + cheap on a future basis

BUD's good in that its in a space that often gets 'absurd' multiples for long periods of time. have a look at ICQ - complete dogs breakfast of a stock that still dribbles along at ~20c despite being massively overpriced, continuously losing money and still nowhere close to breakeven after 3+ yrs of promises

it trades similarly to BUD - course of sales suggest the support is from algorithms not much large volume on- market buying.

that suggests to me these stocks wont collapse unless and until the overall market breaks down - who knows when that may be.

so the key for me for BUD is that - before such a market meltdown occurs - shows it can deliver enough income growth that it gets back on the right side of the narrative - esp around OHM.

June qtr reflected a big increase in the Thor bespoke billing which will remain fairly flat

So market will be looking to compare June to forward qtrs to get a look through to Ohm - as the payoff on that $4.2m qtrly spend and in light of the 3 yr rolling $69.3m forecast

I would think a $1.5+m qtr might be enough to reinvigorate conviction buying if there isnt too much accounting back and forth.

so yes its about installs - given they drive Ohm sales - but the caution I;ve been raising is much more about valuation

to put it in perspective - BID was trawling along at 1c for months until it delivered positive cashflow quarter - and thats what catapulted the stock from garbage bin to bargain bin to star

its equally possible BUD could go sideways for 1yr+ unless its sales gestalt shifts more meaningfully

BUD has a much higher implied margin for OHM (I assume nearly all that $4.2m qtrly is in variable costs related to sales people and incentives not hardware) - so it should rerate before breakeven if market felt sales were J curving

but my points since mid year have all been around pointing out the disconnect between valuation and revenues - and the risks that pose to investor capital - not about the actual ongoing growth in the business - which continues to look positive. the more the sp falls the better that fit will be.

its simply not what it was said to be to this point.

when it shows it is underpromising and overdelivering - then I'll have cause to reappraise.

one would think with all this massive effort on the distributors - that at least one should deliver a big kickstart surge at some point. but thats speculation not investing.

a long post - but these are detailed concepts to outline for people who arent using valuations to measure stock attractiveness.

for those who are - sorry for the detail you don;t need