Pinned straw:
Yes good interview, hopefully we can go a bit more in-depth next time, as someone relatively new to the story it was hard for me to judge if Micheal went off-script much.
KYP reminds me a bit of AIM, the good revenue cannibalising the bad revenue situation, one-off check revenue turning into the SaaS subscription revenue from the compliance platform. Surprisingly, the criminal history revenue hasn't actually declined as much yet. There's definitely lots of competition and a long term growth question as per @jcmleng useful straws but my take is that the level of growth in the SaaS trumps much of that. Micheal says this growth is from self-serve signups and give credence to his comments that much of growth is organic. That's a wonderful and rare thing. What's holding me back is the valuation, my learning from AIM is that the market will probably provide a batter opportunity when the 'bad' revenue drops and total revenue takes a hit. Perhaps this is too cute though.
Discl: Not Held
@Strawman, adding my thanks for what was a really good chat. I had the KYP chart open on one screen while I was listening to the recording and I was mentally working how I can "break some self-created portfolio rules" to open a position.
One of the key things I am trying to add to my thinking from Rule Breaker Investing is "look to hold a company for at least 3 years" - this was also at the back of my mind.
There were a heck of a lot of positives, which confirmed the feeling I had with my deep dive a month or so ago. Liked the management philosophy which Michael articulated, the strategic thinking, the design philosophy etc. It came across as very principled, very well through through/executed.
But what tempered it down for me completely was the moat/competitor question. I took away:
- We are focused on USEABILITY rather than the compliance requirement - this focus on the USER, is the greenfield that KYP has identified
- Plenty of players across the reg tech spectrum
- Not naive that the other big players will eventually come into this space ...
I can see KYP working out for 1-2 years as a short term play while they go after ANZ small-medium businesses and add more workers - their month-by-month, per worker, per month contract model is very smart to remove onboard friction. From my past life, I can very easily see how I would have approved a simple 50-100 employee startup of KYP on this month-by-month arrangement and then have it scale up through natural employee addition.
BUT, while the SAAS solution is highly sticky for now, the moat to retain and grow thereafter still doesn't feel 100% assured to me right now from a product/competition perspective. Useability is very good up to a point, but I am concerned about how defendable it is against the bigger players in the longer run.
Perhaps I am in the middle of learning an important lesson - don't ease up on investing discipline, no matter what. If KYP is to earn a spot on my portfolio, it needs to displace an existing holding, And for it to displace a current holding, it has to be "more assured" than the holding it displaces - it does not quite pas the test now.
Didn't pull the trigger - need to think about this a bit more.
Price is looking more attractive than a month ago which doesnt make this any easier! But it is at PE of 107 ....
