I was expecting the revenues to be down, that’s why I didn’t...

I was expecting the revenues to be down, that’s why I didn’t chase the price on the latest run. However, I didn’t expect the change in strategy and risk profile that this quarterly implies. All corporates put out positive statements and leave you to read between the lines. Frustrating, but a few things are fairly clear.

Cutting of costs was needed with the flat revenues across last 6 or so quarterlies. Receipts from customers FY19 was $634k versus FY20 of $562k. That’s with one full year of the Geodis rollout and supposed growth in their existing and new national and SME customer wins. Most of their client base isn’t worth much and they’ve now admitted it. I haven’t heard the term “customer offboarding” before, nice spin.

They state cryptically that SME interest remains strong, “however without providing market guidance”. I think this means that they aren’t chasing this business with sales overhead, just whatever comes to it. That can be seen in the operating costs cut in half to $3.1m p.a. Although it shows good discipline (presumably due to expectations of a longer ramp up time for revenue), previous presentations showed the potential scale up they could achieve over two years with adding x revenue per salesperson they put on. They aren’t putting sales people on anymore. This is a very small team now, a handful of people. They can’t afford to ramp salespeople or their operating costs go up and they burn cash in hand. That claimed 5.6 qtrs of cash claimed requires no increase in operating costs to achieve. Another minor point is Send Yojee is now renamed Send Singapore. It’s a test bed only and a marginal business.

What’s become clear is that Yojee needs very big volumes of freight/parcels transacting through the software to generate material revenue. They only make money at scale. So the strategy now seems to operate as a small team, focus on their 2 enterprise clients (Geodis and recently Kuehne Nagel) and try to add another or two as that’s where they’ve had some traction, as an Asia distribution arm of the majors. But this also needs time to play out. A previous presentation had the sales cycle for securing a new enterprise client at 18mths I recall. Then once they convert, Geodis rollout started in June last year, so 12mths so far. KNagel just starting this month and I think will get to decent revenue quicker than Geodis but it’s nevertheless for one large KNagel client in one country, so will take time to expand materially beyond that.

The new big risk flag is that of scalability of the software. They are excited by hitting 20k/day of parcel movements and proving the system can handle that. That terrific, good on them, but the breakeven revenues let alone a huge profit potential needs multiples of that volume. If they can’t do larger volumes than that they don’t have a viable business, so it’s a risk I hadn’t appreciated fully and it’s still being proven, not proved.

Risk is now those associated with a narrow client base (relying almost solely on 2 enterprise clients), time to ramp up (they still need to make about $4m in revenue over next 12mths to avoid a capital raising and that’s still a stretch and unproven assumption to get it from these clients in that timeframe), scalability of the system (there is no viable business unless the software handles multiples of current throughput), key man risk with the small team.

Against that they have a developed technology the majors are interested in and have the 2 key clients in hand that can underwrite the business for the next while. However, for me the $100m valuation is too rich and will have to come down as it prices in too much blue sky for the run-way immediately in front. I think people must be punting that next quarter shows a big revenue jump from the first quarter of Kuehne Nagel contract, but if it doesn’t and in fact reflects a rollout more like the Geodis one then the share price will correct much harder.