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 $10m in sales in five years (which would still be impressive growth), it's likely shareholders will do very poorly from here.
So what do you do?
For those that are long term bullish -- and I am in this basket -- you really should only be investing money you can afford to leave untouched for many years. Importantly, you have to understand that there will 100% definitely be LOTS of volatility along the way.
A good analogy here might be Envirosuite (EVS) which has also done really well for Strawman members. We saw a lot of value, and managed to reap some great returns as shares re-rated from ~5c to 35c as the market woke up to the business's performance and potential.
But although the business is just as well positioned today as it ever was, shares are down 50% from their highs, at one one point hitting 8c in March. (As an aside, it's been a good opportunity in my opinion).
Things just got carried away, and those that bought with a short term, momentum only focus would have been badly burnt.
The point is that with Pointerra, you need to expect that kind of thing. I'm not trying to predict any short term moves, and not saying you should try to trade in and out -- just know that if your thesis is based on long-term success, you have to be prepared to sit through some challenging times.
For me, I've been selling down my original holding due to valuation and weighting considerations (i dont want 30% of my portfolio in one stock!). But I am happy to retain a stake given the long term opportunity, and will look to buy if an attractive enough price comes up.
I'll update my best guess valuation shortly.
15 October 2020
Enterprise Sales & ACV Update
During the September quarter, and since the Company last reported ACV (Annual Contract Value) on 1 September 2020, further growth inthe spend by existing customers in addition to the onboarding of new customers in the US energy utilities and mapping sectors has combined to generate further uplift in Pointerra’s US$ 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).
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).
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.
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.
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)
Pointerra has reported a US$0.89m increase in ACV since October 15. ACV now stands at US$5.82m.
This was due to a combination of new sales, plus an increasing spend from existing customers -- though none were individually significant.
The 18% lift over 40 days is very decent. If you annualise this, it translates to an annual increase in ACV of around US$8m.
Shares are on a Price to ACV multiple of ~45 -- which is certainly up there. What's tricky is that that will drop very rapidly if the pace of ACV growth is mainatined.
EG, Assuming ACV of USD$14m this time next year, and assuming the share price is around current levels, the P/ACV ratio drops to ~18.
You can read the update here
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.
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.
Pointerra have reported ACV has grown 18% over the past 6 weeks to $5.82 M USD.
It is mantaining the strong growth experienced during Q1 2021.
DISC - I hold.
Not sure if this has been added from RaaS courtesy of @glutenfree (on linked in)