Increased student numbers and decreased acquisition costs and the share price is up 25%, but, without looking at it too closely, I very much doubt it's enough

Looks like the market has worked out that Cluey isn't doing well.

I think we're looking at the company being worth the residual value of code camp.

If we had management willing to rationalise what value is left and run it for cash or even return capital there might be something here.

Unsure if that market cap includes all shares on issue, but it's not good when cash on hand exceeds market cap!

Fairly large capital raise. This is pretty unpleasant for anyone holding. Current market cap is 33 mil.

There's a results meeting upcoming on Tuesday 12pm if anyone feels like attending.

https://hotcopper.com.au/threads/ann-cluey-1hfy23-full-year-results-webinar-change-in-date.7248538/

I'm curious to see how much more runway these guys have.

I received a reply to my email regarding the employee benefits expense. All of these expenses are not included in the calculation for the gross profit. Many of these expenses will need to grow if the business is to expand significantly. I want to see either significantly more scale, or these expenses to come down significantly as a percentage of the revenue. I suspect they will come down somewhat as a %, but my hunch is not enough to make Cluey a good investment at the moment.

Cluey Learning October 2022

Cluey has been very successful in attracting customers in their last two quarterlies. Doing some ballparking, using a simple logarithmic projection, if their current increase of 22.5k students per half continues, my estimate is that they will hit 70k active students in about 3 years, and max out at around 75-80k active students. Current active students are at 33k, so this could imply a revenue of 83 mil or maybe even 100 mil+. It’s worth noting that current market conditions have been rather favourable for new students and this may change. 

If their stated gross profit margin was accurate, this would be very profitable (maybe 10 mil pretax). In my view, however, the gross profit they state does not align with the actual incremental cost of new revenue. One example here is that the cost of sales advisors is being treated as a fixed cost, when it is clearly at least somewhat variable as new advisors are needed with increased demand. The marketing spend might be able to remain similar while keeping a similar inflow of students, resulting in increased revenue, but I expect that to increase the rate of new students would require an additional spend. 

Supporting this is that in FY22 expenses not included in cost of sales have increased substantially. Excluding some items that I think were one off in FY21, there has been an increase of $1.22 in expenses for each $1 of revenue. I wouldn’t expect that trend to continue, but am still guesstimating that expenses will increase at maybe $0.81 for each new $1 of revenue. Making this estimation difficult is that there is an employee benefits expense that isn’t broken down well, except some reference to sales advisors being included here in footnotes, but from FY21-FY22 accounts for an increase of $0.32 of expenses per new $1 of revenue. There isn’t enough information about this to see how this will scale and I’ve sent an email. 

It’s also worth noting that code camp figures have very unhelpfully been thrown in with the overall Cluey figures. This has muddied the waters, but I think not enough to change conclusions. 

Cluey seems well funded for the next year, or more if they succeed in reducing costs, but expansion of Cluey’s main business into the UK would require a substantial spend that I don’t believe they currently have the finances for. 

If Cluey is able to make a profit, the business may be cheap currently, but I’m not convinced they can. It’s very much a wait and see game on these expenses I think. My outlook could change substantially in either direction based on future results.

@Wini

Cluey just posted up their quarterly activities report - They've had another strong result with 11 494 new students this quarter. Cost of acquisition has decreased, but still not the main issue in my view.

The results are honestly promising, but there are still some significant potential issues. I really need to go in and have a deeper look at this. Potential issues remaining:

• Are they viable without overseas expansion into the UK. (I think they'd struggle to be very profitable)
• Are they able to replicate the success they are having here in the UK.
• Do they have a sufficient runway in terms of capital. Their share price is lower and they will need to burn significant cash in order to enter the UK market properly. Seems to be ~20m capital left. Current market cap is 72mil.
• Staffing costs are very high and were nearly 10m compared to 11.2m revenue this quarter. Their Gross profit margins are nonsense - don't believe them. There's an open question as to whether they can transition to profitability.
• There has been no mention of "active students" in this quarterly. This is one of the key metrics I'm following as it helps with calculating churn, which is critical for a tutoring business. They have mentioned churn being 6.6% better than the PCP (I suspect this is OF the churn???). My count of churn for the PCP was 6377/21920 (I think???), but that may not be the same as theirs.

Quarterly released.

11k new students this quarter, which is a stronger result than I expected and I might need revisit my figures at some point.

April-Jun is usually a busier period and I'd expect demand for tutoring to be abnormally high in this period, so I will be very interested to see these figures.

There are, however, still some significant unanswered questions.

The main one on my mind is whether these student numbers are sustainable and whether they are just a covid bump. The last 5 weeks of last term was very messy for schools. Students would frequently not have their teacher for weeks, there was frequently 1/3 of the class missing, and it was just a gross term all up. I'll want to see some more figures before I believe this is sustainable. Advertising costs seem to be coming down somewhat.

There is also the very significant question of whether the business can execute overseas expansion and scale effectively with this.

There might be a short term trade before the next quarterly possible. I think the key piece of information to follow is the new students.

ASX Quarterly released - https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02442738-2A1334158?access_token=83ff96335c2d45a094df02a206a39ff4

On the surface this looks like an amazing result from the company. In my view it's only average.

The result I'm looking at is the 7411 new students in the previous quarter, compared to 11608 new in the previous half. This looks good, but demand in Jul-Sep is usually strong, and weak in Oct-Dec for tutoring, so I'd estimate that they will pick up maybe 4-6k (I asked management and they said 4-5k) new students in the next quarter, leaving them at 11.4-13.4k students total for the half.

11.4-13.4k new students per quarter just for Australia (and starting NZ) is not enough. If this business is to be substantially profitable, it needs to increase this number substantially and then maintain the same market penetration in the UK when they go there. I think the market in the UK is more competitive to here. While other businesses can increase sales, I'm not convinced these guys can as their marketing is pretty much online and it's hard to raise that above a certain point (once you are in every google search, you can't just pay more to get more students), but we will see.

I think this is very much a wait and see how they go in the next and following quarters before jumping in.

You can play with my model for the business here - https://docs.google.com/spreadsheets/d/1b-u9V95AbhRbqTxVAt7gGpwY-KUwzGmaXgyoRQNHyXM/edit?usp=sharing

More details in forums.

- Edit - Sat in on the AGM.

- The lifetime revenue for students has increased to $2181, which is positive.

- Management seems to think they will reach breakeven in 2024. It seems that they might put more stock in their gross margin figures.

- They are looking to start physics and bio tutoring (this is good, but won't add massively to the numbers).

- They have launched a B2B sales section - directly to schools. I'm not sure exactly what this looks like, but will be worth looking at.

- Mark mentioned that Cluey wants to be the brand that takes charge of most of the learning that takes place outside of the classroom. This market is bigger than tutoring and may help explain the code camp acquisition.

- Management said that they are expecting new students from Oct-Dec between 4-5k. They said that Jan-Mar is their busiest, followed by Jul-Oct. That aligns with my experience in tutoring.