Net Revenue Retention is difficult. How well does to the platform sell itself to exciting customers? We know customers are upgrading their services from the quarterly reports, but we're never privy to the exact numbers. As to how much, well, I'd say it wouldn't surprise me it it was doubled in a year. Precision Hawk was a good example (it went from $5,000 per month to $30,000 per month in less than a year, and IMO it's likely even more than that now):
PrecisionHawk: https://www.asx.com.au/asxpdf/20190605/pdf/445mdh6p38nj4h.pdf "Pointerra Limited (ASX:3DP) (“Pointerra”; “Company”) is pleased to advise that it has expanded its commercial relationship with PrecisionHawk to now include a US$20,000 pcm Analytics as a Service (AaaS) subscription."
"The Company’s relationship with PrecisionHawk has evolved from a US$5,000 pcm DaaS (Data as a Service) customer in late 2018 (Refer ASX Announcement 22 November 2018) through to expansion of the DaaS subscription to US$10,000 pcm during the March 2019 quarter (Refer ASX Announcement 12 March 2019) as well as integration of Pointerra’s technology into PrecisionHawk’s Precision Analytics platform during this time."
"The new AaaS subscription period will initially run for a minimum of 4 months and as with all DaaS and AaaS customers, the agreement is open ended in nature and can be cancelled at any time. PrecisionHawk management has advised that it expects both DaaS and AaaS subscription levels (currently US$30,000 pcm in total) to continue to grow over time as more 3D data is added to the platform and more analytics are developed."
Assuming, and IMO likely correctly, that: churn is minimal, downgrades are negligible, and upgrades make up at least 30% (honestly even 50% wouldn't surprise me) of the increase from 2.41M in ACV over the past year. Ultimately, we need a somewhat conservative value for the: net ACV increase from upgrades/downgrades/churn over the past year). Instead of the possibly lofty 50% and the moderate 30%, I'll use 20% (30% upgrades minus 10% churn and downgrades) to be even more cautious of the likely negligible churn and the unknown likely minimal downgrades.
Net ACV increase from up/downgrades/churn = 20% of (7.5M ACV - 2.41M ACV) = 1M
Great! Now we have all variables, let's plug them in, and see what we get!
Valuation = ? Valuation = Coefficient x Annual Recurring Revenue x Growth Rate x Net Revenue Retention Formula Coefficient = 10 Annual Recurring Revenue = ARR = ACV = 7.5M (my end of October guesstimate) Growth Rate = 2 Net Revenue Retention = 1.4
Valuation = Coefficient x Annual Recurring Revenue x Growth Rate x Net Revenue Retention Valuation = 10 x 7.5M x 2 x 1.4 Valuation = AU$210M
That makes Pointerra look slightly overvalued, right? But....
Important Note: "This estimate needs to be adjusted by gross margin. SaaS gross margins range between 60% and 90% or more. 75% can be considered average, it’s what public SaaS businesses like Dropbox or Docusign have. Therefore, a gross margin upwards of 80% calls for a proportionate premium on the above estimate."
I believe that Pointerra is able to command a premium based on the above paragraph.
You'll may find that, based on all of the above, a AU$250MC valuation, and considering everything the market knows, at least up until now, may be considered fair value. Feel free to correct my assumptions and feel free to post your own findings.
