Some of my initial thoughts (again having not had enough time to fully analyse):
- revenue 36-38m
--> depends. Only concerning thing is depending primarily on transactions that are incomplete at this stage. If this is a large lump sum revenue a la changeup or afterpay then it is a lot more concerning than if this merely reflects 'recurring' revenue long term. I took the operational update to mean that transactional revenue is increasing but growth has slowed (maybe low single digits?) and hope this reflects the latter but will wait for HY to interpret. I really want to know the revenue touch receives from Afterpay processing in longer term!
- profit
Hard to say. On face value loss of 2-3m for the half. But 30% increase in headcount so should see increase in staff costs (NB at HY there was actually a decrease as more of the staff expense was capitalised- if there is a the ratio of capitalised/ non capitalised expenditure increases further may be concerning if combined with falling profit). More significantly the capital raising was done essentially for working capital for this large project they are undertaking so depending on how much is incurred and expenses rather than capitalised it could really not matter that much. Also judging from the update it sounds as if there is some work onboarding Afterpays clients onto the platform that is probably not direct revenue- again if expensed the profit figures are less concerning.
Risk/reward:
- I think there has been a meaningful change. At this price both the downside and upside valuations are much more contingent on Afterpay than previously. If you have a strong conviction in Afterpay as a model, then there is virtually no risk. If you don't, then there probably is still downside risk but ?really how much more. Considering cash on hand and giving ascribing some value to current business is hard to estimate how much lower this can go even if you value AFY equity at zero. That being said some key man risk has been realised with MDs death although rest of board has plenty of skin in game to think their interests will align heavily with investors. Also short term upside of business as usual growth sans Afterpay is much lower, so it does take away a lever for upside. Still think this is more of a play on business execution, as current share price almost assumes that touch's business model is not viable, which seems odd as it has a long history even prior to ASX listing. Can't make any meaningful estimations of share price as I really can't fathom how this update caused this kind of drop and more importantly what information whoever is selling at these prices is acting upon to make this decision (in case I am missing something or misinterpreting things!).
