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97.0¢ onemarket limited

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vagabond84

982 Posts.

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10/11/18

00:14

Post #: 36455423
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Originally posted by Transversal: ↑

@vagabond84

At this stage, any additional revenue would come in the form of new subscription fees to OMN’s Live Receipts product, which is essentially a SaaS type of offering. As such, any individual increments are likely to be rather granular in nature, hence not worthy of an announcement to the ASX.

As to the reviews on Glassdoor, I would personally take that feedback with a big pinch of salt, as many of them will have been written by disgruntled former employees who were part of the recent round of layoffs.

Some of the comments, though (such as the Company being top-heavy and with too high a fixed-cost base, as well as being political, chaotic, and having probably gone public way too early), do come across as plausible to me.

It all seems consistent with the unusual nature of a place which is a hybrid between a startup and the legacy of a large corporation, and whose main catalyst for being spun off was probably the timing of the Unibail-Rodamco deal, rather than the achievement of any meaningful milestones toward being self-sustained.

I do agree that the shares look cheap, though, relative to the current cash pile and even after factoring in the ongoing expenditure.

If we assume, for instance, that the Company will only keep increasing their Receipts from Customers at the current rate of ~1mUS$/quarter (which doesn’t look too high a bar, to me, unless OMN’s business model proves a total failure), they should still manage to break even by the end of CY2021, without the need to raise any capital, and with a residual net cash balance of ~75mUS$ (~105mA$) as of December 2021.

The residual net cash alone would then more than cover OMN’s current Market Cap, even after factoring in Unibail-Rodamco-Westfield’s 10% minority interest in Onemarket Delaware (but before any possible further dilution of OMN’s current 90% share in it due to stock-based employee compensation schemes).

Incidentally, as you are talking about “no sales” and “zero traction”, are you questioning the fact that the recently reported Receipts from Customers correspond to revenue from subscriptions to the network?

I personally do not see it as likely that the Company will be wound up early, and its cash be returned to shareholders, in the event of a failure to deliver; so, I wouldn’t count too much on any “activists” pushing in that direction with meaningful chances of success.

The way I look at it is that the current level of net cash can buy the Company a lot of time to fix their issues and deliver; and, if Management are any good at what they’re doing (which they should be, given their experience and track record), it won’t take very much in the way of future revenue growth to justify today’s Market Cap.

Regarding OMN being an “all-or-nothing” bet, I suspect that part of the reason why STAM have used that language in their report is the fact that their average cost base is 1.41$/share; so, it is a bit hard to say to your investors that there is little risk of a complete wipeout, when you’re down -42.5% on something within less than six months of entering the position.

That does not contradict the fact that, in an absolute worst-case scenario, the ultimate recovery value of OMN’s equity may well be substantially less than the Company’s current Market Cap.

On the other hand, the upside in the event of even moderate success is comparatively massive: if we assume, for argument’s sake, quarterly Receipts from Customers of 3mUS$ in DQ18, increasing linearly thereafter by 2mUS$/quarter (i.e. 5mUS$ in MQ19, 7mUS$ in JQ19, etc.), then the Company would break even by June 2020, have residual net cash of ~110mUS$, and be in a position to deliver some 20mUS$ of positive pre-tax cash flow in the subsequent twelve months.

An EV/EBITDA multiple of (say) 10x would then value Onemarket Delaware at ~310mUS$, or ~385mA$ for OMN after factoring in the exchange rate and current minority interests (but before any further dilution of OMN’s share in Onemarket Delaware).

It should also be remembered that, in the event of success, the intrinsic value of the retailer/venue/tech network envisaged by OMN’s Management would itself increase along with the number of subscribers; therefore, I don’t see it as too much of a stretch to also factor in an scenario with future revenues growing exponentially rather than just linearly.

It is a highly speculative proposition at this stage, no doubt about that, but also one where at current price the odds look heavily skewed in the buyer’s favour.

IMHO & DYOR

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@Transversal

It's possible that the sales increase last quarter was from incremental new sales for their networked product from smaller retailers that did not merit separate announcements. If so, I feel management should have mentioned this in the quarterly update. Otherwise I'm just going to assume the sales increase was due to seasonal or lumpy sales from their other businesses (e.g. shopper exchange). That's is not a bad thing, but from what I understand, these sales do not carry any obligations for the retailer customer to share their data with other retailers, and thus does not contribute to growing the network or the long term vision. I'm also uncertain as to the economics of the unnetworked products, and whether they can be counted upon to provide sustainable sales growth.

Basically, I've assumed, no new announced retailer partnership agreements = no traction in stated vision.

Fair enough that you choose to take the glassdoor reviews with a grain of salt. You certainly have to keep some skepticism when dealing with anonymous posts on the internet. I personally find the posts fairly credible, especially given the sparse progress made by the company since listing.

Is it possible that management continues to push forward with their tech vision and spend the entire ~$200M cash balance doing this, regardless of whether they encounter insurmountable roadblocks (e.g. perhaps no retailer beyond Nordstrom is interested in sharing their customer data with other competing retailers) or other harsh realities (e.g. they are too far behind the market leaders in digital receipts, or the entire interactive digital receipts concept isn't viable in the first place because no one actually 'interacts' with their receipts). Sure. But the board is full of top tier bankers and lawyers. They're no dummies. I'm betting that they can recognise dud concepts when they see it, and will take seriously their duty to maximise shareholders' wealth.

Last edited by vagabond84: 10/11/18

OMN Price at posting: 78.5¢ Sentiment: Buy Disclosure: Held
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0 Great analysis

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