Relentless downtrend.
300m market cap.
on track for >300m revenue and 150m gross profit.
ebitda positive.
lots of tailwinds (post covid rebound in all major verticals, industry cagr, increasing market share, new verticals, banking, etc) to drive top line growth…
but…
net loss is around 50m per year and they are burning 40m per year cash based on last half trends with most factors that drive the cash burn set to be ongoing next half and for the foreseeable future (ie marketing to drive new customer growth, sales teams to drive new customer growth, headcount increases in all aspects of the business, increased salaries for new and existing staff, purchasing new terminals to support upgrades and new customers, expanding into smaller scale customers, expanding new products eg tyro go, integration of new acquisitions).
they have only 50m cash in the bank, so it feels like a cap raise is coming soon, which will really hurt at a sub $1 sp.
furthermore, the economics of the low margin business model are such that they aren’t showing a clear pathway to profitability that is clearly visible, ie they can’t just pull the margin lever once they achieve market share because it is too easy for customers to churn to competitors.
also, their transaction value growth is half that if their merchant growth, suggesting they are acquiring smaller merchants with lower transaction values. This may be fine if tyro get a a better margin on these and can recoup the customer acquisition and integration costs, but the concern is that they could be overpaying sales staff to acquire new low value merchants that don’t generate enough revenue to justify their cost of acquiring and supporting them (ie net loss or marginal net profit per new customer). I haven’t seen a recent tyro presentation where they break down the economics of how much it costs to acquire and integrate a new customer and how long the payback period is to turn a profit. This would be particularly concerning given the churn rate is 10% which tyro describes as low but is actually high and rising (hopefully this is more due to covid related business closures rather than switching to competitors but we don’t know this).
finally, the top line growth numbers look impressive but most of it is Bendigo and medipass, with organic transaction value growth below 10%. This makes it hard for them to achieve profitability when their net cashflows/ FCFs are so negative and gross is slow and they are spending heavily to buy growth and pay more staff.
so I’m not seeing much operating leverage at this point in time.
I would like to have a nibble at 90c, but I’ll wait for proof of their ability to pass the inversion point of scale to achieve sustainable profitability whilst continuing to grow, and I’ll wait until they have raised capital again which they may choose to do before the august results.
these prices may prove to be a bargain, but I’m cautious given the cash burn and lack of operating leverage. I own some shares so would be delighted to buy more once they prove they can achieve strong organic growth in transaction value and new profitability / positive free cashflow rather just buying low yield increases in merchant numbers through partnerships and overpaid sales teams.
so my sentiment is hold but watching closely to see if and when the above metrics turn in their favour to justify a buy and long term hold.
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