Valuing IOU
I have made an attempt to value IOU, asalthough I have seen much speculation, I thought it would be good to try and run somenumbers. Others should feel free to add their own valuations, or comments on anything below, as this is more for discussion purposes.
In doing so, I have sought to use a number ofmetrics to value being (1) valuing the current income from regular BAU activities,and (2) valuing the future BNPL revenue/services growth.
It is common in tech/fin-tech industries tovalue growing companies on revenue and future growth (i.e. the valuations providedby brokers for SOR/BRN/4DS etc. that have limited revenue, but significant potentialrevenue).
Current financing services
IOU had $2.2mil revenue, an increase of 86% forthe quarter. That is a great result, given the effects of COVID and the resourcesof the business being used towards the rollout of BNPL. A huge re-rate should come on the back of this alone.
It is difficult to value IOU, and the usualmetrics are hard for smaller fintech companies, particularly given IOU is yet to beprofitable. The price to sales ratio test would be the best to use, but I don’tsee how much value that would be given that ASX doesn’t really use that metric, and as you can see from fintech's there is no average price to sale ratio that seems to apply.
Of course, fintech companies are also usually valued using total gross transaction (value processed), underlying merchant sales, total addressable market and active merchants and consumer growth. However, this is difficult to model (i.e. a lot of time and effort), so if others can do this that would help.
Instead, I thought for present purposes it is easier to compare IOU's MC tosimilar fintech companies:
- CRO has $330 quarterly revenue, with a MC of $110mil.
- KYK has $620k quarterly revenue, with a MC of $25mil.
- 8CO has $1.2mil quarterly revenue, with a MC of $30mil
- DOU has $0.0 quarterly revenue, with a MC of $110mil (not sure if this is correct?)
- WZR has $5.9m quarterly revenue, with a MC of $200mil
- RZI has $1.1m quarterly revenue, with a MC of $100mil.
The above companies are not at all like IOU,and therefore there is no real rhyme or reason to compare each individually toIOU.
There’s also no easy way to understand the revenuelinkages to MC, given there are some companies making less revenue with largerMC’s than those with more revenue.
Either way, if you look at revenue of $2.2milrevenue, it is not hard to see a MC of circa $75mil to $125mil is definitely around themark of “fair value”.
BNPL services
Given the soft launch of BNPL in a couple ofdays, the market needs to start pricing in this offering into the MC. As you can see, it is hard to believe that any value is in the IOU SP at the moment for BNPL and it is launching in a couple of days.
Again, here is a look at the “smaller” BPNL companies:
- Lay-buy: MC of $250mil, quarterly revenue $9.5mil
- Open-pay: MC of $250mil, quarterly revenue $7.2mil
- Splitit: MC of $630mil, quarterly revenue $2.9m (note $90mil cash in bank)
Now, IOU have no revenue in BNPL, so we cannotvalue similar to above. But what revenue can we expect per quarter, assuming ifthey start their “hard launch” in April?
Well, Splitit in their “first year” (Iunderstand it was not their first year, but they had a couple of years tradingin advance, but 2019 was the first year it actually started properly rollingout its service) had annual revenue of $1.65m, with a MC of circa $250mil.
As such, if IOU target $1mil in revenue for thefirst year, this could realistic mean an additional MC of $175mil using thevaluations of Splitit.
However, given IOU’s entrenched relationshipswithin Malaysian banks, and the untapped potential of Malaysia and Indonesia,it is not unreasonable to assume that this 12 month target of $1mil is low, andthat we could see revenue much north of this – it will be interesting to seewhat IOU’s projections are.
Overall valuation
If you combine the valuation for the financialservices, and for BNPL, then by June ’21, IOU could have a valuation of circa $275-$300mil.
That is more than 200% growth from here.
Of course, the above is dependent on continuedrevenue for its current financial offering, as well as successful rollout outof its BNPL offering. However, with the recent growth and the talentedmanagement onboarded, as well as deep relationships with Malaysian banks, Ithink that is relatively assured.
Lastly, with the soft launch scheduled inFebruary, I also imagine that they will need to start announcing thesecommercial deals and identify the merchants/banks they are aligned with.
DYOR, not financial advice, and do not rely onany figures.
(20min delay)