@Valueinvestor0909 agree entirely. I was going to write up some further notes on the call, but I think some of what was said needs some more detailed analysis when I view the recording.

A few snippets.

Positives

• Several larger MSPs onboarded in 2023, so expecting it to take time for the $DSE products to be fully embedded (i.e., in-built growth to come)
• New functionality launched in Q4 to provide a service to MSPs to help them do the data migration for end customers. Overcomes the problem where MSPs sell the product but don't have the capacity to support end customer on-boarding.
• Charif estimates there are 130,000 OECD MSPs of which $DSE serves c. 4000, so a lot of room to grow with the existing suite
• $DSE analysis on MS365 Backup is that for their typical customer, it will be a premium product, with other advantages also cited
• While %GM-=70% appears to be where they will be for a while, there will be pluses and minuses from Q to Q, related to bringing on tranches. However, Charif indicated a comparable benchmark indicating that he has his eye on 75% GM in the longer term as the business scales.
• Churn seems OK, taking out the low value legacy client (which seems reasonable as discussed last year). Ultimately, I think churn is a key metric to track for evidence of the competition from Microsoft.

Negatives

• Quickbooks offer not expected to be material as $INTU not focused on the MSP channel. Good that $DSE maintaining discipline in their channel focus on MSPs, but none-the-less disappointing when new products (appear to) fail to deliver their business case
• Looks like higher payments in Q4 will be repeated in Q1 (remark by Bill), so continued pressure on Operating CF?

As I said, there was a lot more in the call, but the above are just some of the tangible specifics I spotted.

Lots of evidence that Charif continues to follow a disciplined approach to capital allocation. Also good to hear the relentless focus on providing excellent service to their MSP customers, as a point of differentiation.

Nothing on the call to change my HOLD view from yesterday. But I think some deeper analysis is warranted. To reiterate @Valueinvestor0909's view, I am a bit borderline on $DSE based purely on the numbers. However, I think Charif consistently shows up as a CEO who gives me confidence, and that is in large part why I remain invested here.

Great write ups all. I see this as a vertical business rather than pure software product, i.e. it's an MSP service dependant business that sells their own products. That's fair enough given the training that would be needed to MSPs to make sure clients are properly backed up and prevent human error. But it's a bit too complex for me with risks around how well they can maintain their relationships with MSPs, and they are vulnerable to any number of competitors moving in to the space. Of course they will have to keep spending R&D to keep the product best of breed.

Below is a good review site for Microsoft Azure Backup and you can see they have many other competitors. At first glance, Microsoft Azure Backup seems to be broader product than just Office 365 backup that Dropsuite is focused on, so maybe that is the unique selling proposition for Dropsuite?

https://www.gartner.com/reviews/market/enterprise-backup-and-recovery-software-solutions/vendor/microsoft/product/microsoft-azure-backup

@actionman Good points. $DSE is playing on a global stage (targeting all OECD markets) in what is a very dynamic and emergent market with many alternative offerings.

I think the consensus on SM is that Charif is a good CEO and the track record over the last few years is impressive. However, there are two big things outside of $DSE's control. 1) Competitive intensity, including ongoing technical innovation by competitors and 2) Customer behaviour regarding the Syntex/Azure Backup.

It is clear that Charif is alert to the competitive environment both in citing $DSE's performance on MSP customer satisfaction and time to resolve requests, as well as the disclosure that in Q4 they failed to close an M&A opportunity due to the aggressive action by a competitor. The M&A agenda indicates they perceive the need to build out the customer offering. (The target was a "governance" solution).

While I have a toe in the water with $DSE, in 2024 I'll very much be tracking progress. Churn is a key metric and at annual churn of 3% (6% including the legacy client, now completely rolled off in Q4), a material adverse trend here will pick up both the general competitive intensity and Syntex factors. So I hope that Charif continues to report this metric. Any failure to do so would be a "flag" however, to date Charif has been pretty transparent, evidenced by continuing to disclose all quarterly cash metrics even though they are no longer obliged to do the 4C reports.

In terms of the most recent results, there have been some changes to analyst views, although I don't yet have full visibility.

Canaccord Genuity raised their Price Target from $0.38 to $0.40 on the Thursday release, the previous target having been raised from $0.34 in April-2023.

Interestingly,reporting on their tech conference in August 2023 they stated:

"Microsoft remains a talking point, with DSE stating it expects no impact on its business and growth trajectory post the launch of Syntex. Our channel checks and industry calls are in line with this commentary. Interestingly, DSE's share price is down -30% since the MSFT release, while its listed peers N-able and AvePoint (~50% ARR, i.e., US$100m, exposed to MSFT backup) share prices are broadly unchanged. While price comparison is hard to calculate, MSFT Syntex could be upwards of US$8/user (DSE US $3/user) with an SME using this product giving up data independence as the data is stored in the same tenant (i.e., Azure Cloud, same admin login)."

Unlike some of the Aussie analysts, Canaccord have a much wider global coverage, so their insights are interesting.

The other analysts I see that cover $DSE are Ord Minnett (initiated 21-Dec-23 at $0.34 BUY) and Shaw & Partners ($0.35, BUY). So Canaccord is easily the most bullish, but also a firm with a wider industry perspective.

From my perspective, $DSE is still to hard to evaluate (hence my small psoition) or rather, my range of valuations given where we stand today is so wide as to be meaningless. However, in the success case, there is certainly upside from where we are today.

So it is important for me that Charif maintains his current level of transparency. That way I can decide whether to take a bigger bite or to get out.

Another factor I am looking for this year: with the MSP model and the news about the onboarding of several large MSPs in late 2023, at some point we have to see the network effect start to kick in. What I mean by this is that over the last 11 quarters growth in receipts has been broadly linear. At some point soon if the product is attractive to MSPs and end customers, then we have to see better than linear growth. I have to see this over the next 1-2 years for the thesis to be maintained, otherwise I don't think it will scale economically. So, for now I am comfortable holding a smallish position and with continued transparency, I am happy to see how this plays out.

Finally, the tech security space will continue to be hot from an M&A perspective. At 6x revenue, $DSE is far from cheap. However, there has to be a reasonable chance that it gets taken out by another IT security player if it builds out their product suite. While not a reason to hold on its own, I think this gives some support to the downside case, provided execution remains strong.