Pointerra is seeing an accelerating pace of growth and has (hopefully sustainably) passed a profitability inflection point.
US$1.1m of contracts added in August alone - more than the entire prior quarter. That implies a very high annualised run rate, though it's worth remembering that sales cycles can be very lumpy.
Still, the market opportunity is substantial, 3DP are the leading player and have an attractive business model. But as Rapstar has pointed out, there's considerable execution risk.
My concern is that that isnt being accurately priced by the market at present, although acknowledge the exciting potential of the business (in fact, as with many here we noticed this last year).
There's a lot of moving pieces here, which makes forecasting financials super difficult. But to take a reasonably optimistic outlook, let's assume Pointerra can achieve an ACV of US$20m by FY23 (that's a high rate of growth, but off a low base). I'll assume revenue will be US$12m. In AUD that represents >100% top line growth for 3 years (not a timid forecast).
Assuming an inevitable and necessary ramp up in expenses, I'll thumb suck an NPAT of US$2.
Accounting for FX, and a modest increase in share count, and applying a PE of 50 i get a target price of 21c, or a valuation of about 14c if i discount by 15% pa.
The point here is not to say that Pointerra is worth exactly 14c, but that even under some pretty robust assumptions it's hard to argue for a bargain.
Then again, the real value of this will be if Pointerra achieves genuine long term success.
For the sake of example, let's say Pointerra mirrors Nearmap (NEA) which has similar themes and $106m in ACV and $96m in revenue. It took Nearmap 8 years to scale from $5.7m to 96m in revenues, and it is still loss making on a NPAT basis.
So let's say Pointerra does about the same and in 10 years has $100m in revenue. Nearmap trades on a P/S of 14, so if 3DP is in the same position in FY30, the share price would be about $2. If you discount that by 15% per yer you get a current valuation of roughly 50c.
Under this scenario, which is certainly plausible, shares seem super cheap.
In this example, we do rely on a P/S ratio that many would argue is very aggressive for a $1.4b compny and well above historic market levels -- even for growth stocks.
For comparison, if we use a P/S of 5 -- which is still quite decent, with all else held the same, we get a valuation of 18c.
So again, we can see that there's a huge range of potential outcomes. Even under favourable assumptions.
Of course, there is the very real possibility that sales growth doesnt eventuate to the degree expected. EG. if Pointerra has only $10m in sales in five years (which would still be impressive growth), it's likely shareholders will do very poorly from here.
So what do you do?
For those that are long term bullish -- and I am in this basket -- you really should only be investing money you can afford to leave untouched for many years. Importantly, you have to understand that there will 100% definitely be LOTS of volatility along the way.
A good analogy here might be Envirosuite (EVS) which has also done really well for Strawman members. We saw a lot of value, and managed to reap some great returns as shares re-rated from ~5c to 35c as the market woke up to the business's performance and potential.
But although the business is just as well positioned today as it ever was, shares are down 50% from their highs, at one one point hitting 8c in March. (As an aside, it's been a good opportunity in my opinion).
Things just got carried away, and those that bought with a short term, momentum only focus would have been badly burnt.
The point is that with Pointerra, you need to expect that kind of thing. I'm not trying to predict any short term moves, and not saying you should try to trade in and out -- just know that if your thesis is based on long-term success, you have to be prepared to sit through some challenging times.
For me, I've been selling down my original holding due to valuation and weighting considerations (i dont want 30% of my portfolio in one stock!). But I am happy to retain a stake given the long term opportunity, and will look to buy if an attractive enough price comes up.
I'll update my best guess valuation shortly.
When the Strawman community nails it again.. 3DP up 95% ????
Pointerra has issued 50m new shares at 5c each to raise $2.5m. It's a bit disappointing given they said only a few months back that they weren't likely to raise additional cash.
Nevertheless, there are some positives here.
The obvious one is that the balance sheet is in a much stronger position, and based on prior commentary from management this should easily see them through to cash flow positive.
Next, the issue price of 5c is a good premium to the average market price over the past 3-4 months.
Finally, and perhaps most interestingly, the shares were sold to Bevan Slattery -- someone with deep experience and success in tech companies. With this transaction, he holds 7.5% of Pointerra.
Slattery founded Pipe Networks in 2002 and sold that to TPG for $373m in 2010. He also founded Megaport (ASX:MP1), up 7x since listing.
See below for his experience (from Wikipedia).
ASX announcement here
15 October 2020
Enterprise Sales & ACV Update
During the September quarter, and since the Company last reported ACV (Annual Contract Value) on 1 September 2020, further growth inthe spend by existing customers in addition to the onboarding of new customers in the US energy utilities and mapping sectors has combined to generate further uplift in Pointerra’s US$ ACV run-rate.
1) ACV growth accelerates to 33% growth on Q3 to $4.0 million, as at July 30, 2020. It can be lumpy, so best looking at it on an nnualised basis. It has grown around 115% year-on-year.
2) The company is now on a cashflow breakeven runrate, based on forecast operating cots.
3) Company intends to accelerate hiring sales and software development staff, given the healthy sles pipeline, and additional funding provided by Bevan Slattery's strategic investment.
Really pleased to see the benefits of its high operating leverage going forward, which will allow the business to invest in the platform, and the sales team to build a leadership position in this potentally huge market.
Decided to share this graph on here. Feel free to correct or nitpick at it. Keep in mind that September's AU$ ACV value has been calculated using the exchange rate today. Also keep in mind that quarterly ACV values are usually not released until a complete month after the end of the actual quarter's end. Expect September's quarterly ACV to be a lot higher than what is shown on the graph when the final ACV is released by the company at the end of October (1 month down, 2 months to go).
Sell. 180m market cap for 4m sales. 180m gets you PPS with 50m sales and 14m EBITDA. Valuations might not matter now given all the momentum money, but you're taking on an awful amount of risk buying the stock at these levels.
Ok, valuation is looking very stretched. But category crushing busineses, servicing secular changes will always be pricey.
High gross margins will allow Pointerra to grow exponentially with limited capital expenditure requirements. Having a look at similar businesses, and their valuations could be instructive for investors.
To help understand this, I have looked at a company with the same high gross margins and growth rate. The company I compared Pointerra to is WIX.com. Six or seven years ago, WIX.com was growing revenue at an annualised rate of 88%, and had an EV/S ratio of 40. WIX.com has rallied over the past 4 months, and has an EV/s ration well above my table below, but I hope it gives investors an idea of how one may consider Pointerra's currnet valuation to be fair value.
As the table shows, Pointerra has to grow rapidly to justify its valuation, but the growth rates required are certainly achievable, as demonstrated by category crushing businesses. PS - I don't think WIX.com is by any means a category crusher, and is faced with strong competition, a situation Pointerra is not faced with (but may change as its success attracts competitors).
1) Maiden cashflow breakeven quarter, as promised. Costs actually fell, with a recuction in Admin costs, and othere costs relatively flat. It is one feature I like about Pointerra management- They are careful with their money.
2) Big wins foreshadowed, namely:
- Pacific Gas & Electric (PG & E )have completed proof of concept project, and are in teh process of negotiating an enterprise deal. They will become Pointerra largest customer. I belive Presionhawk is Pointerra's largest customer atm, at +$300 k per annum. This deal alone ispossibly a 10% boost to revenue.
- Through the P G & E deal, Pointerra has developed a relationship with Accenture, who is seeking to pursue further global opportunities through their Energy Consulting Services division.
- Precisionhawk extended their existing commercial relationship with Pointerra.
- Florida Power & Light extended the commercial agreement with Pointerra over the quarter.
3) New use cases flagged in the film and television sector for their 3D marketplace business.
4) Platform development - Further devleopment to the platform including 3D CAD in the cloud feature. Linking pointcloud to 3D CAD is the holy grail of infrastructure and precinct design - one development to watch with interest.
Pointerra will provide an enterprise sales update next week.
August Sales Update - I was wondering why there was no business update with the full year results - now we know! The separate release this morning has advised ACV grew 33% in the past month.
It was a carefully worded release, ponting out no single contract win triggered a continuous disclosure obligation.
Pointerra are now profitable on a ACV run-rate basis.
Pointera is also launching its data marketplace, which is a really interesting opportunity. This business places Pointerra as a market aggregator, bringing data vendors and buyers together via their platform, built on its unique technology. Its early days, but this could develop into a network effect driven platform - the more users and vendors on the platform, the stronger the business becomes.
A podcast interview with Pointerra CEO Ian Olson, released this morning:
(thanks to @L888 for pointing it out to me)
Delighted with the market update and 4 c yesterday. Considering where this Company is in it's life cycle, reporting 72% Revenue growth quarter on quarter provides not only a confirmation of market traction, but endorses the value proposition. Few contest the market potential for this business and IMO, above all, their value proposition will underpin future success. What's more, too early for the Company to provide any meaningful cohort analysis, but confident that growth via new signings will be materially complimented via extended usage by previously onboarded customers. Reminds me a bit of the PushPay growth story.
For those that have watched the various Ian Olson podcasts, this is not someone who will be employing new people for the sake of it. Staffing up to 19 people according to yesterday's report, so still 'lean & mean' in my book. Revenue scaling is happening right now and already the trajectories are looking super impressive. Given this is a high gross margin business, I am very confident that this Company will become highly profitable. I have the patience to match (without anchoring my thoughts on the prevailing share price).
May be in a position to have a first go at a 12 month forward valuation when they release their half year results in Feb 2021.
Pointerra are hiring a US Business development manager. The roles KPI is all about sales and business development, and it is encouraging Pointerra are investing in growing their sales piepline and opportunities.
It is a sign of confidence in the opportunity, but it will be 12-14 months before we see any results from this new sales hire.
Media coverage has started for 3DP, article from Stockhead.......
Billionaire tech investor Bevan Slattery has geospatial analytics company Pointerra (ASX:3DP) in his sights.
The company has issued a $2.5m placement to an investment vehicle controlled by Slattery, via 50m shares priced at five cents each.
Markets responded to Slattery’s seal of approval as 3DP shares climbed by more than 60 per cent in morning trade to 9.4 cents — the highest level since January 2018.
Pointerra’s core product offering is a cloud-based platform which allows 3D geospatial images that removes the need for high-performance computers to process huge amounts of data.
The company booked $530k of revenue in the March quarter, up from $180k in the December quarter.
In comments accompanying the placement, Slattery said Pointerra’s technology places it at the forefront of where the market is heading for 3D data imaging and storage.
The company derives revenue from a Data-as-a-Service (DaaS) model which is “priced based on the amount of data (in terabytes) we are hosting and the number of users each customer requires”.
It also charges for data analytics, and clips revenue on a transactional basis when it helps to match sellers with buyers of 3D data.
Slattery said 3DP has “the potential to be a world leader in this field and ultimately to help feed the geospatial systems behind industries including telecommunications, renewable energy and autonomous vehicles”.
Director sale Ian Olson sells 700K shares at around 44c? mark. Still holds 8.8mil shares. Jennifer Olson holds 10mil shares no change. First thought is this is not good, but I'm not sure what to think to be honest. If I was a director and knew some big deals or announcements were going to be coming out would you not wait to sell? But it's also worth noting that the share price has had a big run up and if I'd been working hard for years to build a business, I'd also want to see that materialise into something.
Placement to Strategic Investor (Australian Tech Entrepreneur Bevan Slattery Invests in Pointerra)
- Investment secures Mr Slattery’s corporate and commercial involvement in the Company
- Placement of 50 million shares at $0.05 raises $2.5 million
- Funds to be used to accelerate Pointerra’s global expansion
UPDATED (thanks @RobW)
Pointerra'a 4th quarter report was encouraging.
Cash receipts grew 55% to $0.82m from the preceeding quarter, and up 290% from the same quarter last year. This was due to an increasing spend from existing customers and the addition of new customers. Pointerra again told investors to expect lumpy cash receipts due to the timing and nature of customer invoicing.
The business was cash flow positive, in the black by $220k for the quarter (and down $800k for the year). This was however aided by a $120k grant from the US govt. as part of covid stimulus measures.
Importantly, a number of enterprise proof of concepts were progressed, the most important being Pacific Gas & Electric. Both parties are working towards a full commercial agreement -- one that will make PG&E Pointerra's largest customer and "have a material impact on CV growth."
Further large enterprise contracts are expected in the coming quarters.
Pointerra also announced plans to partner with Accenture's global energy consulting team. This will hopefully prove to be a valuable channel (although likely at a lower margin).
Interestingly, the business is looking at expanding into a 3D data marketplace for the film & television sectors. Given the growing use of Computer Generated Images (CGI) in this industry, there could be a decent niche area that Pointerra can exploit without much added investment.
With $2.4m in cash at the end of the quarter, and the recemt $2.5m investment from Bevan Slattery, Pointerra has close to $5m in the bank. Although much of this will be used to expand resources, given some large contracts on the horizon and the business hopefully remaining cash flow positive (on average), any further capital raise seems unlikely.
Quite happy with this. No word on ACV, but that's expected before the end of July, as well as more detail on enterprise sales.
What makes it hard of course is that shares are on roughly 30 times the pro-rata Q4 cash receipts. But the thing is that it only takes a few big deals to really swing the dial, given we are working off an extremely low base. If they land PG&E as well as Florida Power & Light (for example), ACV could double on that alone.
So while it seems overly generous to ascribe high double-digits growth rates when doing valuations, it's certainly not implausible. In my experience, it's best not to get too fussy with price when sales are on a J-curve (just watch the underlying business like a hawk to ensure that is indeed what's happening).
ASX annoucement here