@Slideup great perspectives. This is why I am holding my small position for now, and retaining the option to increase if momentum returns and looks like it might be sustained.

For example, as you state - becoming the preferred solution for Defence would on its own be transformative. I agree as well that Card Hero is a dark horse and might also become somthing if it can get wider adoption in the sector.

Certainly, management's continued cost discipline is key to keeping hope alive!

While we may look back in a year or two and see that these levels offered an incredible opportunity to hoover up a ton of shares, I just lack the conviction and don't have the risk appetite to make such a move with a nano-cap.

@mikebrisythanks, I agree buying here will be seen as either either brave or foolhardy!

My take is more if I wouldn't buy more at these levels then I really should sell it and move on, and this gut rule has protected me somewhat from past mistakes where the company ultimately ended up bankrupt. I am also bad at averaging up, which is a weakness I am working on, but to date averaging down has worked for me more often than not. When it has worked is usually in situations like this where the market is just uninterested in the company even though the underlying company is actually doing ok.

My approach with 8CO has been to dollar cost average into the quarterly/ half yearly declines both here and in real life, which has helped me (apart from the one time I had a fat finger error of buying 10k instead of 1K on SM, doh!). I have often noticed that I am too early to many of these stories, despite this it will still be painful if the market turns out to be right, but I don't rank insolvency as a high risk here unlike many microcaps. I see the risk more as a muddle though but ends up somewhere very different in terms of profitability than where I am expecting. I also wouldn't be surprised if this comes in for tax loss selling and ends up being closer to 2c before the next quarterly. As it wont take many marginal sellers to drop through SP. This level is where I am looking to do my next dollar cost purchase.

@Slideup Brilliant analysis mate. Thanks for sharing.

It's difficult to be positive about a business with only $100k in the bank, but there remains a reasonable route to profitability the quicker they can onboard GovERP users and reduce reliance on KPMG contractors.

The mention of good cashflow receipts in April is of course a good sign, however I struggle to see how they will get through the next 6-12 months without drawing down some or all of the chairman's $1.5m loan facility, which I imagine will only further depress the beaten-down share price.

And yet still I hold. Which cognitive bias is it again when you figure it's not even worth selling a share as it's already down 72% from purchase? Blimey

It's a typo on the presentation slide I think.

January '24 showed 79k users not yet engaged with 174k total potential users.

March '24 shows 7.5k not yet engaged, but still 174k potential users, So can only assume 7.5k should be 75k to make the math almost work

Or probably there is change in government mandate so its not mandatory for those users to actually go through this process and they can select other solution independently. So 174k potential users are there but not mandated anymore..(speculation from me but this explanation makes sense to me)

@Dangles and @Valueinvestor0909 Ive found the user funnel to be a bit rubbery over recent reports. I used to reconcile it every quarter but the goalposts have changed a few times, so I am a bit suspicious about some of the classifications.

Happy to focus on active users, ARPU and revenue.

@Dangles, you were right it was a typo, they just released an updated graphic and said it was a typo -- the numbers for users not engaged is 76,500.

I take a less bearish approach than a few here. Cliché perhaps, but the nature of this business means quarters can and will be lumpy. I think it’s important to take a step back and view business performance over 12-18 months. We have a business that continues to win government contracts – the best kind when you have them – but the road has definitely been a long one, like you allude to @mikebrisy. Slowly but surely, they are onboarding government agencies and, in turn, increasing revenues.

Achieving protected status and project implementation costs have both likely exceeded what the board estimated. If the protected status has been achieved as they say, with no more costs to follow, then that is a big win. That just leaves the problematic implementation costs, which include significant contractor costs. With plenty of onboarding still to achieve, these costs will likely remain relevant for some time. In an ideal world, this wasn’t so expensive for 8common to facilitate. Alas, here we are. That said, they continue to invest in their future without ridiculous dilution like many of their micro-cap peers. The 1.5m financing facility, from the Exec Chairman no less, demonstrates alignment but also confidence that he will presumably get his cash back at some point if the money (or part of it) is required by the business. That helps mitigate some of the risks and concerns, for me at least. Knowing they won't have to tap the market on the shoulder -- at least any time soon -- with the share price at these levels, is comforting.

@mikebrisy, I disagree with your assertion that the Fed Gov ARPU decreasing is a red flag. Sustained quarters of this would be concerning and doesn’t reflect a business that will scale well, but this has previously been a volatile metric and will likely continue to be so going forward.

While the quarter, in my view, was not a good one, the nature of this business means results like this will happen, particularly while they are investing in and onboarding large clunky government entities. The big question will obviously be – at the end or towards the end of this process – what happens? When the protected status investment is in the rear-view mirror, and the implementation costs are no longer required due to a good portion of both federal and state government agencies having been onboarded, what will the cash flow statement look like? Will we see a business that starts to show operating leverage? They will have the best kinds of contracts at this point – sticky, stable government ones – and can raise prices to ensure they are a sustainable business (within reason).

On the other hand, a contrarian view might be that the business never achieves scale. Fundamentally, it might be that the business model is not an attractive one, even with the government contracts, and they are not in a position to make the profits required to operate sustainably.

That said, I don’t think the bear case argument is likely to eventuate or send them broke. At a market cap of a (measly) 7m, you are getting one of the dominant Australian businesses in travel and expense management – a niche market – that has a significant share of the government sector, particularly at the federal level. Further, you are getting a business that is bringing in around 10m in revenue a year -- with this increasing -- and a clear growth runway ahead of it. At a market cap of 7m?! I am happy to take that bet.

In fact, I am buying (with caution) at these levels, mainly for valuation reasons at this point, but also because I think they will be in a strong position in a few years’ time if they can ride out the investment window. I acknowledge this is a little spicy for some, but I think this continues to present an attractive opportunity – although I thought the same when the market cap was double the current level, so what do I know!?

A few flags I continue to look for (as triggers to exit): fed gov agencies heading for the door, sustained periods of fed gov ARPU at lower levels, sustained cash flow losses (for instance various quarters like this one with losses higher than 500k) and issues/delays with onboarding agencies (which would theoretically result in the business remaining in this implementation stage, much too expensive). 

Ps - I sent investor relations an email early this morning relating to the likely typo (which has since been rectified via an official release, as per @Slideup's post above). Nic had replied to my email within an hour of me sending it, acknowledging the error and indicating they would rectify it (as they have done). Credit where due.

@Rocket6 Fair enough, I was a bit fast and loose with the "red flag" label (if red means "stop the bus, I'm off"). So, I'll dial it back to "orange". Here's why.

The commentary on the ARPU only noted the favourable Total ARPU to PCP comparison. Fair enough. However, I couldn't understand the Government figure. Now, we know Government card spending has a clear cyclicality, with 3Q being a low period no doubt due to not much going on in January. Therefore, I have plotted the 3Q periods below in nominal $ (blue) and in $FY24 (orange), using the broadbased RBA inftation adjustment calculator.

We know FY22 was low, because around the Federal Election, there is a distinct reduction in activity with departments in caretaker mode. So, on a normalised basis (i.e. no election), FY22 is likely on trend with FY21 and FY23 - less lumpy than it appears. So, the FY24 result is surprising and at the low end of what you might expect given quarterly lumpiness. The picture is inconclusive on a nominal basis, but on a real basis, does it indicate that spending activity is falling?

A second consideration is that, as the proportional rate of user additons any period falls, so the proportion of users who have been using their cards for the full quarter increases. In order words, an existing user has used their card on average for 3 months in the quarter, while the new user has used theirs for 1.5 months, on average.

All other things being equal, as growth in new users slows, ARPU should therefore increase marginally. The waters are a bit muddied here due to the de-booking of a chunk of users that contributed numbers but no spend prior to 3Q FY23. (Hence my original remark about numbers of users being a bit "rubbery")

However, again, you are correct in your pushback. There are too few datapoints to say with any confidence that the 1QFY24 government ARPU is significantly lower. However, it does cause me to scruitinise this in future.

Part of what colours my rhetoric on $8CO is that a company this small isn't in my normal investing comfort zone. My thesis was based on a faster growth in numbers and revenue via GovERP. As the rate of wins slows and new user growth is modest and if a question arises over ARPU progression, I find myself with an immaterial holding with potential thesis creep.

The bottom line is that, overall I agree with your assessment, which is why I haven't sold. And if 4th Q finishes strongly on all fronts, then there is still a chance I'd want to build a bigger position. Of course, the dilemma is, that with a strong 4th Q, the SP will no doubt pop. But I think that's OK, because it has got pretty much beaten up over the last year - I thought it was good value at $0.087 - my average cost base.

So for anyone with conviction who turns out to be right, there's a potential motza to be made here!