Q2 Update

The Good

• Quarterly revenue has improved 15% YoY to $22.1m which is a positive indication after the drop off in Q1. Revenue increase carried by LATAM.

• LATAM overall EBITDA continued to trend well, with Yappo showing its best performance in a year, increasing EBITDA margins to 27% on a reduced revenue.  This was the highest in the LATAM region for the quarter.

• Strong improvement in the PakWheels and Yapo businesses
• Centrify & Iris continue to improve revenues QoQ. Centrify now 14.8% and Iris 4.4% of LATAM revenues

The Not So Good

• EBITDA (group) margins are trending down in MMG and remaining flat in ASIA and LATAM businesses. Mixed results across all the underlying businesses with an EBITDA margin range of -50% to 28%

• Zameen continues to underperform it’s previous highs, however is still the main business carrying the ASIA region.

Watch Status

No Change

Valuation Status

Review after Half Year results.

What To Watch

• Continued growth in Yapo following the release of a new system completed in June allowing easier deployment on new products and features. 
• New ancillary product releases - Self Service Marketing is the next focus after Iris and Centrify. From the Strawman meeting there was a target of around 6 new products over an 18 - 24 month period.

• Pakistan's economy continues to improve following elections and IMF decisions.
• MMG - Integration of home financing product (Carried over - No Update)
• ASIA - Online inspections and auto bidding in the pipeline. (Carried Over- No Update)

Below are my rough notes from the meeting. There might be some errors as I haven't gone back through to check them. Nothing too new there except it does sound like there is a potential setup for a new stage of growth for the way the platforms are being aligned for the development and integration of new products. Thanks @Strawman for setting up.

• Currently going through consolidation of businesses in each of the regions. LATAM going from 4 to 2 platforms from July 1. MENA group next, ASIA not going through this stage yet due to ownership levels and the stages of the businesses within the group.

• What lessons have been learnt from investments that haven’t worked? 
• Have exited businesses where there have been issues with the founder. When looking at the business, look at them from the smallest to the biggest to see why the scaling isn’t progressing.

• When you look at the businesses do you see more opportunities?
• Consider the portfolio as a region base now rather than a collection of the businesses under the FDV banner as a whole. Currently there may be more space to grow the footprint in each of the regions. LATAM - currently focused on scale, MENA - focusing on growth, ASIA - less evolved competitive market, still room for leaders in markets to emerge.

• Growth vs Profitability?
• Still a growth business, can expect profitability to come with growth. Upcoming Q2 results may reflect a return to focus on growth.

• Inflation in Emerging Markets
• EMs typically live with inflation that is more tolerable than in western markets. Inflation and interest rates have halved in Pakistan. Seeing improved market conditions which is helping business conditions. Some government intervention into housing markets which is assisting, some markets transactions aren't backed by loans so interest rate risks are different.

• FX
• Convert by USD so there are movements in both directions, hedging occurs by where FDV holds cash in local currencies.

• M&A
• Always on the lookout for opportunities, signs of M&A improvement across markets over the last several months. Need to consider what is best for shareholders of FDV.

• Mercado Libre
• Gumtree of LATAM market, horizontal marketplace. They have now pivoted to be the Amazon of LATAM and more of a retail space compared with FDV. Does not consider them a direct competitor.

• Sovereign Risk
• Avoid to begin with. The markets that have been selected are chosen to help avoid the works of emerging markets risk. Not dependent on international transactions so internal transactions tend to continue regardless of what is occurring. Other more “stable” markets can also have major disruptive risks.

• AI
• Influence of AI on the day to day is low impact, nothing in the AI space that is currently going to change the business in a fundamental way. Lots of use in improving efficiencies within products and for users. Facilitator not captured by it.

• Gross Margin Reductions
• Don’t focus on gross margins typically, focus is on the bottom line. 20% EBITDA margins for some of the operating businesses already. Classified businesses are already profitable and the future is now focused on expanding the businesses beyond classifieds.

• Centrify & Iris
• Examples of new products that have a long term scale potentially several million each. Not directly applicable in other markets. Want to add ~6 new products over an 18 to 24 month period. Working on better platforms that allow for more streamlined product releases.

The Good

• LATAM360 EBITDAs are trending up across 3 of the 4 business’s

The Not So Good

• Revenue is up on the PCP but down QoQ. Q1 is revenues can be impacted slightly by seasonality so the expectation would be an improvement next quarter. The $19.2m revenue for the quarter when annualised is less than FY23.

• Cash balance of $13.9m indicates a FCF burn of ~ $0.9m, so there is still room to improve before the business is covering its investments in R&D.
• Now that the quarterly reporting isn’t mandatory, operating expenditure will not be visible until the half year report.
• Web metrics and revenue splits across transactions and subscriptions are no longer reported
• Yappo was impacted by fires in Chile and a system change which is more aligned with Encuentra24.
• ASIA businesses are trending flat or falling EBITDAs except for iMyanmarhouse

• The same is the case for the MMG business’s

Watch Status

Deteriorating - QoQ decrease in revenues across all business units

Valuation Status

Hold

What To Watch

• Pakistan is still struggling economically and likely to for quite some time.
• LATAM360 - Launch events planned through major cities for the IRIS platform. Potential to continue to drive revenue growth. (3.6% of Revenue)
• LATAM360 - Expanding locations for Centrify (13.5% of Revenue)
• MMG - Integration of home financing product
• MMG - No reported details for PropertyPro?
• ASIA - Online inspections and auto bidding in the pipeline.
• Zameen revenue was the highest in Feb24 since Feb23, showing signs improvement could be starting.
• Improvements in Yapo after system change and release.

FY23 Presentation

Q4 Results

The Good

• Revenue for Q4 of $21.7m which is the highest of FY23 after 3 quarters of consecutive growth. 

• Quarterly EBITDA slightly down to $2.2m but positive for FY23 and up on the pcp to $4.8m
• Ended FY23 with $14.85m in cash
• After four positive cashflow positive quarters, FDV is now no longer required to provide the mandatory quarterly updates. Management have indicated that they will continue to provide an update on this basis. Hopefully these maintain the same details as per the current updates.

• 12.5% QoQ improvement in revenue in MENA up to $2.7m with revenue growth mostly from subscriptions. EBITDA reduced 50% against Q3 to $0.35m with Avito trended back toward previous performance.

• 93% QoQ increase in EBITDA in Asia to $0.6m on the same revenue. Primarily from an uplift in Zameen.

• 18% QoQ increase in EBITDA in LATAM to $1.75m on a marginal revenue increase. Driven by strong performance of InfoCass and Fincaraiz

The Not So Good

• 34% QoQ growth in staff expenses. This is the biggest driver behind the fact that even though there were record cash receipts, operating cashflow was down in Q4.

• Full year revenue down to $80.6 from $84.5 mostly driven by reduction in Zameens contributing revenue.
• A fall in the reported web metrics across all regions. This follows a flat quarter in Q3. Potentially a bit of seasonality in these numbers and wider macro events having an impact in these areas as they are in Australia. 



Watch Status

Downgrade to neutral due to financials behind forecast.

Valuation Status

Valuation reduced. Forecasts to be revisited based on FY23 results.

What To Watch

• Ongoing improvement in Zameen operations will lead to significant increases in contributions from the Asia region. Stabilising economic conditions in Pakistan could provide some tailwinds for a Zameen turnaround.

https://www.imf.org/en/News/Articles/2024/03/19/pr2491-pakistan-imf-reaches-staff-level-agreement-second-final-review-9-month-sba

• Working towards increasing transactions revenue in MENA.
• Targeting gross margins of 40-50% across all businesses.
• Update on the status of Dubizzle listing. Likely London Exchange.
• Investing in a product roadmap to improve user experience and target new revenue areas. Keep an eye on impacts on investment spend and announced products.

Annoucement

The Good

• 9% QoQ increase in total revenue to $21m - $58.4m YTD. 

• 35% QoQ increase in EBITDA to $2.3m - $5.7m YTD

• Positive operating cash flow of $890k and free cash flow of $272k which led to a marginal improvement in cash position to $15.4m. Third consecutive quarter of positive operating cash flow.

• Operating expenses continue to remain flat

• General improvements shown across most of the groups business’s

The Not So Good

• Reported web metrics are flat over the previous quarter which may be a bit of a leading indicator for growth in the operating regions. These have only been reported over the last two quarters so it may be a little early to draw any inferences from these metrics

• Zameen revenues improved slightly, however EBITDA was down QoQ. (This result was impacted by currency appreciation) 
• Yappo (LATAM) and PropertyPro (MENA) also had ongoing EBITDA declines over the quarter.

Watch Status

What To Watch

• Q4 will require 14% total top line growth to match FY22 revenue which will 
• Improving operating margins mean that EBITDA is currently on track to exceed FY22 and deliver positive operating cash flow for the year.
• Roll out of Iris into wider LATAM markets expected to generate new revenues. This will show up in the “Other” revnue category in future reports.
• Avito has become the strongest performing brand by EBITDA. One off?

Announcement

The Good

• New branding for 360 LATAM and MENA Marketplaces indicate long term business building strategy by separating from the FDV name.

• The split of revenue type for each group was reported this quarter. If this metric is carried forward it will make tracking management’s focus on increasing transaction revenues easier.

• Although total revenue for Q2 was down YoY, overall EBITDA had improved which demonstrates that the focus on cost control is showing.

• $15m in cash remaining at the end of the quarter after earn out payments have been completed. Q2 was marginally operating cashflow positive for the second consecutive quarter, so this balance should be enough to fund the next stages of growth.

The Not So Good

• Zameen continues to struggle with revenues falling 32% QoQ from $3.65m to $2.45m and 64% YoY from $6.81m in Q2FY22. Management have indicated that revenues had started to show signs of improvement. Some of the improvement has been masked by the improving rupee.
• Total group revenue for the quarter of $19.2m, which is an improvement on Q1’s $18.2m but when annualised out to $76.5m is still down on FY22’s revenue of $82.3m. This shows how significant Zameen previously was to the business even with as the rest of the business’s continue to improve.
• While the operating groups are improving, the rate has been fairly slow compared to the targets indicated by management for LATAM. Also, most of the growth in the 360 LATAM group comes from changes in exchange rates. The only business with noticeable YoY growth was Encuentra24.



• This quarter's update is quite promotional compared to previous updates dedicating a slide on comparing the current share price to the IPO price. While share price ultimately matters as a holder, I’d rather the quarterlies focus on the business.

Watch Status: Cautious

What To Watch

• Improvement in Zameen revenues from May to June was flagged by management. With the macro situation improving this improvement should continue.
• Fincaraiz B2C revenue stream expected to contribute to growth in coming periods (Carried over from the previous quarter - No significant change this period)
• Continued growth in transaction revenue. This currently makes up ~26% of total revenue.. (Carried over from the previous quarter. Note this can now be tracked if the revenue splits reported this quarter remain)

The Good

• Overall cash flow positive for the quarter which is a signal for the growing strength in the LATM & MENA businesses. Management indicated all regions are cash flow positive, however the reported figures do not include Zameen which is the majority of the Asia business.

• Overall operating expenses continue to improve. This is unlikely to continue with any further significant reductions.

• As management indicated last quarter, Yapo EBITDA has improved -$309k for FY22 to $473k for the quarter. Avito also improved its EBITDA numbers significantly compared to the pcp off of flat revenue growth.

The Not So Good

• Significant impacts to the Zameen business from the wider macro issues in Pakistan. These will likely be ongoing for at least the medium term so the improvement across other regions has removed the reliance on Zameen going forward.
• Zameen revenues down 43% on PcP which has impacted the wider results. (LATM up 6% on PcP)

What To Watch

• Ongoing macro and economic issues across the wider geographic regions in which FDV operate. Generally the IMF sees GDP growth across these regions FY24 beyond.

• Continued growth in transaction revenue. 
• Management targeting revenues of ~$100m for LATM business in FY25 which is over 30% per year until FY25. Rev for Q1 was up 6% over FY22.
• Fincaraiz B2C revenue stream expected to contribute to growth in coming periods

The Good

• 37% growth in revenue to $82.3m resulting in a record full year EBITDA of $5.8m which is once again is adjusted for restructuring costs. These amounted to $1.9m, which if deducted still results in a record full year EBITDA. 

• Strong growth from businesses in all regions with Encuentra24, Zameen and Avito being standouts.
• Expenses are staying fairly level, with further cost savings having been implemented.

The Not So Good

• Yapo whilst increasing revenue slightly, there was a decent drop in EBITDA. Management has indicated that EBITDA has shifted positively going forward.
• Management have highlighted that changes in currency have masked performance of the holding companies like Zameen. This will continue to be a risk going forward, particularly in Pakistan and Colombia. On the flip side, they haven’t mentioned where the changes have helped results like in the case of Encuentra24.

FY22 Average - 141.63

FY22 Average - 2992.19

• Operating cash flow is still running in the negative. Now that the consolidated businesses are catching up to Zameen and FDV Asia in terms of performance, cash flows should start to improve going forward.

What To Watch

• There have been two quarters in a row now where there have been adjusted figures for “once off” costs. Keep an eye on ongoing restructuring costs.
• The restructuring costs are across the regions with consolidated business units so the results of these should start to show in the cash flow statement next quarter.
• Wider macro environment for potential further headwinds in the operating regions.

Further to @jimmybuffalino 's straw

The Good

• Record quarterly EBITDA of $2.3m with positive EBITDA across all three regions (needs to be taken with a slight grain of salt as MENA adjusted for ‘restructuring costs’)

• Expenses across advertising, product costs and admin levelling out which means that as revenue continues to increase there should be signs of operating leverage starting to show. 

• Businesses within Pakistan, Myanmar and Sri Lanka still maintain revenue despite significant disruption in the regions.

The Not So Good

• Operating cash flow was still negative for the quarter at -$1.5m, however there is still a strong cash balance of $28.9m which covers the growth period.
• Reductions in revenue across all MENA businesses compared to Q3FY21
• Yapo is currently a drag on the LATAM region having had revenue contraction of 23% on the pcp.

What To Watch

• Ongoing management of operational expenses, in particular staffing costs which are still rising
• Ongoing improvement in EBITDA margins
• Further macro impacts across operating regions, which impact both business operations and exchange rates which is the biggest risk to ongoing revenue growth.

The Good

• 8% revenue growth QoQ across the portfolio to $20.2m, trending for similar growth in Q2 with $7.3m revenue in March. Encuentra revenue would have attributed to this growth as ownership was increased from 26% to 100% in December 21. 
• Biggest annual growth across the businesses for Q1 was recorded for InfoCasas (108%) and Yappo (162%). FDV increased to 100% holding in these companies in H1 of 2021. Validates management capital allocation strategy. (Both are coming off small revenue base)
• Transaction on platform numbers continue to increase showing results from the focus from management as a key revenue driver across the businesses. FY22 currently tracking at ~70% increase based on March numbers.

The Not So Good

• Lots of talk about consecutive positive EBIDTA but overall operating cash burn is highest in 12 months at -$2.395m for the quarter with jumps in admin, staff and advertising costs. FDV has a solid cash buffer with $48m in the bank, so operational losses can be carried as long as the growth is continuing. These have been described as short term increases.

What To Watch

• Level of ongoing operating expenses 
• Organic growth levels when not impacted by acquisitions or ownership growth. Q2 should provide a clear indicator for this.
• $48m in cash, likely further acquisitions coming. FDV currently has 100% ownership across the LATAM and MENA regions, so without new additions to the portfolio, ownership increases will be in Asia. (PakWheels? Not a majority owner in this business)
• Integration of Ai (AGM Presentation) to streamline the advertising and transaction processes.