Livetiles targets mid to large organisations moving from traditional code-heavy digital workplaces to drag and drop, customisable and machine learning oriented intranet software.
Shares remain depressed since the company’s June quarterly update, having lost close to 30% in the past few months. So is this a buying opportunity, or are there more falls to come?
Livetiles’ annual recurring revenue (ARR) has increased by a factor of ten in the last two years to just over $40 million, which is significantly above the industry median for both the age of company and ARR level. Moreover, with a target to grow recurring revenue to over $100 million by June 2021, it seems there’s still a long way to run.
Livetiles is still unprofitable, and in the last financial year the company acquired Wizdom – it’s biggest competitor, and the European market leader – which put a further dent in Livetiles’ full year loss. However, Wizdom is cash flow positive and will continue to help improve cash flows.
Because the majority of Livetiles’ contracts are quarterly, and are paid after a grace period, it takes about two quarters until an increase in announced ARR delivers a corresponding increase in revenue.
In contrast, acquisition costs are realised upfront, meaning that cash flow is not pretty in these early high-growth stages. This is despite the underlying unit economics being strong. Livetiles boast a net retention rate of over 100% due to expanding customer contract values, and as a result has a lifetime value to cost of acquisition ratio that is very attractive in the long run.
For example, in their investor presentation, using a discount rate for future cash flows of 10%, a gross margin of 95% and a very conservative churn of 92.5%, they estimate that every $1 in sales and marketing now is worth $3.80 in lifetime value of the acquired customer.
With only $14.8 million in the bank, and reporting an operating cash burn of over $6 million in the last quarter, it seems investors are wary of the potential for a capital raise. It is worth noting, however, that cost of acquisition on a seasonal basis has been decreasing while average contract value increases, and that unit economics remain in check — meaning that any capital raised will likely generate an attractive return.
Ranked #9 on Strawman, and with a consensus valuation well above the last traded price, it seems the community considers LiveTiles an interesting proposition. Click below to learn more.
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