Thank you for a measured and reasoned comment, quite rare these days.
a) Customer acquisition cost We do understand the benefit of the acquisitions, ie a new set of customers, staff and developed software. There are two issues 1) Are these step function growth steps, ie you add the users growth that year but then you need to buy someone else next year to get more growth or will these customers drive growth at 25+ pct going forward We think it is the former 2) What are these customers worth WTC is paying 4x sales and more to buy in these businesses. We are not given numbers etc so we can't know what that is per customer but it looks very expensive. We think the risk reward stacks up the wrong way.
Moreover this is M&A instead of employing sales. This is how they have such low Sales and marketing expense. Do you really think the cost of these acquisitions is a perpetual asset or should it be written down. Think of this as a business view not as some accounting rule. If written down over say 10 years (pretty generous) then WTC profits start to vanish. Particularly if the growth is a step function.
b) Profit and cashflow. WTC capitalises its software development. This stands in contrast to nearly all similar companies around the world and has lead to blow ups in the past. Expense these costs and cashflow and profits drop to close to zero. What would you do if it was your family business?
c) Software as a Service stocks. The best do well because they grow fast, have great operating leverage, scale globally WITHOUT M&A, generate cash and buyback stock. Hence the high valuation.
Which of these traits does WTC have? Growth - Yes but slowing and depends on M&A Operating leverage - In decline Global - Yes, but M&A dependent Generate cash - No Buyback stock - No , issuing
d) Ownership. Beware using this as a confidence builder. Many companies with founder stakes have done badly
e) Accounting. There is criminal fraud, they take your money and lie about it, think Chinese scams, and there's creative accounting. We see creative accounting as using dodgy but legal accounting to misrepresent the company. Most companies use a variant of this, especially if there are share compensation programmes.
We don't see WTC as a criminal fraud but we do see them over juicing, in a legal way, the numbers. But if the stock halves, you still lose money. Have a look at the company and say to yourself. If this was my family company and I was going travelling for two years, would I accept these accounting methods as being a good way to measure management performance. If yes, great, if not......
We dont tend to look at outright criminal frauds rare, small and difficult. But there are lots of large stock creative accounting stocks.
Have a look at the history of Noble group, thyssenkrupp, Bombardier. Family stakes, dodgy accounting and shareholders got screwed. Our videos are up on Youtube, you can see our style and how these stocks have done over time.
Notwithstanding, we always say, do your own work. Don't rely on us, but hopefully we have given you some pointers.
Here is the link to the video, we post every 10 days or so
WTC Price at posting:
$23.30 Sentiment: Sell Disclosure: Not Held
(20min delay)