If you step back and thick about the whole picture rather than staring at the share price.
- Market Cap @ 50c = ~30 million
- Revenue is currently accumulating at somewhere between 50k-100k per month
- It is hard to estimates costs of goods sold, but let's assume that 25% of revenue is earnings after marketing etc. (costs linked to sales)
- That puts Zip on an underlying EBIT of 12.5k-25k per month (150k-300k per year) and a price/earnings ratio of 100-200
But, this is not an established company, operating in a standard fashion. What you need to do with a speculative company is predict forward earnings and base a valuation on those figures. For the sake of argument consider this.
- If we allow Zip to be priced at a PE ratio of 40, with a minimum CAGR of 40%, Zip would only need to reach earnings of 750k per year (or somewhere between 2.5-4 times the current earnings)
- A very smart hedge fund manager named Peter Lynch once said, that a PE of a company should match the % growth rate of the company at a minimum, and the higher the PE/Growth rate (i.e., PE = 100/CAGR = 100% is better than PE= 20 /CAGR = 20%)
- Looking forward and projecting earnings for when they launch a full marketing campaign, it is extraordinarily easy to justify the current market cap. Further, I expect CAGR of over 40% for the first several years of the company.
- What do 750k earnings (3 million annual revenue) look like? If Zip manages to accumulate a user base, not downloads, of 10 million users over the coming market campaign, this requires an ARPU of 33cents. Something I believe ZIP will quickly be achieved. How many Indians would love to pay for a brett lee sticker to send to their friends?
On top of all that - the app has improved significantly since launch. I call home on it to Canada 2-3 times per week, and my parents have even become avid users being the most technologically challenged people I have ever met. My partner calls home to Bulgaria daily and loves it. Everyone I have passed the app onto in the last two weeks has become avid users for overseas calls. The change to the new backend platform has solved a substantial number of issues, and the scalability of cloud-based services should remove many of the problems in the future.
If you want to value a company on present earnings, then get out of this side of the market - you are just going to lose money. Have some foresight to see what these guys are doing. They have spent the last six months analyzing the best user acquisition strategy, measuring stickiness, fixing the back end/front end, and preparing for an important marketting push in 2016 that will result in a major amount of revenue.
Right now, someone is capping the share price, as I put in buy orders, there was an automatic change of another buy order 0.5c above whatever I put in. The sell-side for the stock is so thin, the only thing coming online to cap the price is bots and hidden sellers. Selling will be overcome.
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