CXZ

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If CXZ are developing a white label version of OnTrac, I'm not...

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17/09/20

12:35

Post #: 47416949
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Originally posted by vagabond84: ↑

Is it really 100% fair to say there's nothing wrong with the company though? Since they launched OnTrac in early 2019, vehicle subscriptions - their main source of revenue - have been fairly steady at around 70k vehicle subscriptions per month. Then covid hit, and suddenly subscriptions are trending down. For June quarter, subs fell to 64k avg, from 70k the previous quarter. And now for the Sept quarter, they're expecting 58k subs avg.

Honestly I think the company should do more to explain why subs are falling. is it belt tightening by dealers who can't justify providing free loan cars for cars that come in for service? If it's cost cutting, is there a risk that this freebie loaner car doesn't return as dealerships adjust to a permanently new, lower cost base? Some clarity on this issue wouldn't hurt imo.

Another note on GM contract renewal, while I think the risk that the contract doesn't get renewed is low, I do think there's a chance the contract isn't renewed on the same terms. Reading the contract announcement, it sounds to me like CXZ was tasked to build the loaner car software for GM. I might be wrong on this, but it sounds like GM owns onTRAC now, not CXZ. If GM owns onTRAC, why not retain CXZ for the customisation services (since CXZ has the expertise on this), and keep the subscription revenue for themselves? So I think that's a risk I'm thinking of as well.

For what its worth, I'm not entirely bearish on the CXZ stock. There's obviously potential to grow via signing additional car OEMs. And they're very profitable on historical numbers. I think it's come down far enough that it looks like it could be a decent spec buy, even with the risks I've mentioned (Full disclosure: I've got a bid in the market for 120k shares @ 1.6c). But I do think it's not all roses here.

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If CXZ are developing a white label version of OnTrac, I'm not sure that GM would have ownership over the system. Also the ANN from 2018 states that "As outlined in the Company’s announcement on 4 April 2018, the Company will deliver the Software as Service programs using 100% owned software components and systems".

CXZ Price at posting: 1.9¢ Sentiment: Buy Disclosure: Held
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