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Ann: Quarterly Update, page-90

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Tiga33

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03/02/20

13:01

Post #: 42715788
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Originally posted by T.E.P.: ↑

I vehemently disagree with those urging the company to rush to cash flow break even.

The math is not complicated.

SaaS revenue is akin to an investor looking at an annuity. If an investor could buy an annuity for $100 (Cost of Acquisition) that generated a return of $35 per year (Annualized Recurring Revenue) for fifteen years (7% churn)......would you buy that annuity?

Bear in mind that it is CASH FLOW NEGATIVE in the year of acquisition. From the investors' pocketbook, $100 goes out and $35 comes in resulting in net negative cash flow of $65. US and European investors would go "You betcha I would buy that annuity"

Then in the second year, the opportunity comes along to buy that annuity again for another $100. Would you say " No, sorry, I'll take a pass. I want to be cash flow break-even and just pocket the $35 per year without growth"? Or would you double your ARR to $70? and remain cash flow negative?

Add to that the land grab... assume there is only $5,000 of this annuity available and whoever buys it first has it all. Perhaps instead of buying $100 in the second year, you would increase your spend and take the $35 revenue from the first tranche of the annuity and spend $135 on buying annuities in year 2 so that your revenue does not increase from 35 to 70, but instead, increases from 35 to 82 and your cash burn increases to $100.

In year 1 negative cash flow is -$65, in year 2 it is -$100 and it year 3 (if the gf/wife/market limits you to no more than $100 per year) there is an inflection point at $100.....cash burn stops increases and stabilizes or decreases, but you still buy these annuities as fast as you can. If the gf/wife insisted you were cash positive by year 3, you would be a lot poorer than if she let you burn cash for 7-10 years buying these annuities.

Subscription SAAS is a very simple model if you have (1) A good product (2) Commercial skills so that a sales effort results in recurring revenues with low churn (3) A reasonable Cost of Acquisition (4) Product pipeline and product refinement so that the product range remains competitive.

The share price will rebound in time.

Cheers,

T.E.P.

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Topped up again at $ 0.058.
Regardless of the downramping sentiments recently expressed in this forum, the fundamentals shown by this stock make it remarkably undervalued at this point of time.
Klaus and his team deserve to be congratulated rather than denigrated.

1ST Price at posting: 5.8¢ Sentiment: Buy Disclosure: Held
4 Upvote

1 Great analysis

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