Top member reports
Consensus community valuation
$4.30
Average Intrinsic Value
33.5%
Undervalued by
Active Member Straws
#Management
Added 6 months ago

At the risk of sounding like a plonker, I do think that the Board need to level up on skills and diversity.

I believe that they are doing just that with their most recent addition, Fiona Milne, Head of A.I and Data who has a background in astrophysics, has more than 10 years' experience in data science.  Ms Milne has worked on machine learning projects for NAB, Odds.com.au, MYOB and the ACCC. She joins Whispir from Eliiza, a machine learning and AI organisation. Fiona is also the founder of Women in Machine Learning & Data Science whose mission is to support, promote and develop women and gender minorities practising and working in the field.  

Compare her to Jeromy Wells, co-founder and CEO.  This appears to be his first Rodeo, and has executed his idea very well.  I am unsure whether the Chairman, Brendan Flieter, who is also currently the Chairman of Kennards Hire, before that Godfreys Group and was the former CEO of Crazy Johns,   has the tech focus I would expect, however, I am sure he has some powers he brings to the team.

Ben Erskine is Head of Marketing and was also Head of Marketing for XRO Australia.  

None of the Management teams stats are displayed on their website.   You have to dig a bit deeper.... Are they hiding their inexperience?  Probably not???

Recently the old CFO resigned and was replaced with Justin Owen....  Does this hint at a possible issue with culture in the company???

Perhaps..

Glassdoor reviews are actually some of the worst I've read... On par with Collection House Ltd, who had scathing remarks about their product, their development ideas, their leader...  These reviews were balanced out with weekly breakfast provided in the office which was a nice touch.

Lets hope they continue to recruit great talent.

 

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#ASX Announcements
Last edited a month ago

Whispir reported Q1FY21 results today, and the market and I was hoping for more.  

  • The ARR grew slightly at 3.6% to $43.7M. This is not significant and the market is thinking that Whispir is having demand issues. 
    • Especially when they only acquired 35 net customers. 
  • Customer churn rate has gone down over time from 12% to 9%. However, to me, (9-10)% is too high.
    • They have 665 customers, by using a 10% churn  Whispir is telling me that they would lose ~ 66 customers a month or 178 customers a quarter. That would mean Whispir added ~ 213 new customers to the platform this quarter. 
    • If Whispir cuts down customer churn to 5%, that means they have to spend half as much on sales and marketing. Churn is an important metric to follow. My prior assumption was customer churn of around 3-4%. 
    • Ironically, the revenue churn is below 3% and has gone down from 7%. This is pretty good as it shows that customers do pay Whsipir's fees. 3% of $43M ~ $1.3M of loss revenue. As the Whispir grow, we hope the revenue churn be below 5%.
  • Another important update was that "SME market launch [will be] within next year". I believe they were earlier planning for the SME launch late this year. I think this has been delayed, hopefully, it happens soon. Currently, existing customers are using it.  
  • Their FY21 guidance is still intact and being conservative.
    • That is 20-30% revenue growth ($48M - $51M).  
    • 14-35% EBITDA improvement (-$6.23M to -$4.8M)
    • 20-30% ARR growth ($51M - $55M). 
    • 8-15% R&D spend growth ($9.2M - $10M). As mentioned in earlier straw, the R&D has to deliver new products and services to drive revenues in the long-run.  
  • In Appendix 4C, cash burn was $3M this quarter. They have around 3 quarters worth of burn before a capital raise. I think they should do it early with a high share price so that you get less dilution but also provide support for the share price. I would raise $10M and use it to expand North American operations by using AWS credentials to win new customers.        
  • Overall, it was not a bad announcement as ARR did increase and so did net customers. However, customer churn is still high. Whispir can solve it in 2 ways:
    • Reduce churn by spending more time on customer engagement and keeping them on the platform. 
    • Grow faster than churn rate. Maintain churn around 8-10% but grow customers by 30-40%. The net result is 20-30% growth. 
  • If they reduce churn, new customers flow to the bottom line. If they grow faster than churn, they also achieve leverage, however, more pressure is put on sales to keep up the growth rate. Whispir is currently taking the second route. 
  • I hope over the long term when Whispir has more than 1000 customers, they spend more time reducing churn and transition the customer across the Whispir value chain. In saying that, focusing on growth right now is important as reflected by the current share price.  
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#Valuation
Last edited 6 months ago

Whispir is on track to meet prospectus guidance in FY20 EBITDA range of ($7.4M) – ($7.9M) well ahead of ($9.4M). I expect revenues to grow to $230M in 10 years which is a CAGR of ~ 19%. To theoretically achieve this, Whispir have to grow their customers from 509 to 1177 with strong MRR growth in Enterprise product adoption. I also expect smart bundle customers to grow at 10% which is faster than 8% growth in enterprise and 6% growth in Single use. This equates to 537 customers in Single use, 494 in smart bundle and 146 in Enterprise.

Whispir will reinvest heavily into product development during 2020-2023. Thus, free cashflow is expected to remain negative until 2025. I chose sales to cap ratio of 2 for the next 10 years as reinvestment would decrease when the company matures. The profitability is the most challenging aspect of the valuation. Despite being a technology company, I assumed a low 20% operating margin due to their high reinvestment on R&D.

I attached a 4% Equity risk premium to the COE as Whispir had low weight on their market value of debt. Therefore, the cost of capital came to 11% to reflect the riskiness of future cashflows. As the company matures the riskiness of cashflows would decrease and by terminal year I expect the cost of capital to be 8.5%. The present value came to $630M or $5.60 per share after attaching a 20% probability of failure.

The important follow up analysis would be the justification of the assumptions above;

Revenues of $230M can be justified if Whispir convert multinational clients on the single use product to Smart bundle/Enterprise. Currently 60% of users are on the Single use product, over the next 10 years it should drop to 45%. This means that smart bundle would grow from 33% to 42%. Moving a customer from 1 use case to smart bundle is equivalent of getting 2 single use customers. Extending the previous analogy, getting a customer to Enterprise stage is equivalent to getting 11 single use customers. The value proposition for Whispir is greater if they can move customers along the value chain.

To attain $230M in sales, bulk of their revenue have to come from North America and Asia. Currently the composition is; ANZ (80% - $25M), Asia (15% - $5M) and North America (5% - $2M).

In 10 years, I expect the ANZ revenues to grow slowly at (7% CAGR - $50M), Asia to grow rapidly at (32% CAGR - $80M) and North America to grow exponentially at (48% CAGR - $100M). This means that in 10 years, Asia/North America should make up 80% sales. Tying into their go-to-market strategy, the use of their partners have to be successful to pull $230M in 10 years to justify valuation of $5.60.

Reinvestment using sales to cap ratio is the least error prone for high growth, money losing companies like Whispir. The justification of having sales/cap of 2 is that in the early years, Whispir will invest heavily in R&D where for every $1 of invested capital you would get $1 of sales but in the later years, they can reinvest more efficiently at a ratio of 2.5. When you average out reinvestment for the 10 years, sales/cap ratio of 2 is reasonable.

Surprisingly I did not stress over the risk of cashflows. Whispir is growing their ARR rapidly and grew their clients during an economic crisis. Hence, the risk premium of 4% is a conservative assumption on short term commercialisation risk. COE of 7% came from using a levered beta of 1.17 indicating that Whispir is slightly risky than the market. The reduction in COE to 8.5% takes away most of the 4% premium.

Profitability drove the valuation for me. Giving Facebook level margins of 30% would have given a value of $887M or $8.57. Thus, to be in the conservative side, I chose 20%. The high reinvestment and staff cost also contributed to my decision of giving them a lower operating margin.      

 

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#Bear Case
Added 2 weeks ago

Peter Gehl the former VP of North America moved to a competitor called Thunderheads in August this year. He was with Whispir for only 9 months.

This is what Whispir lost;

"Mr Gehl brings more than 20 years’ experience in the enterprise software market in North America with previous senior leadership positions at Salesforce, Oracle and Kenshoo among others. As Whispir’s VP Americas, Mr Gehl will oversee the execution of all aspects of Whispir’s North American strategy. 

We are fortunate that we’ve been able to secure an executive of Peter’s calibre who has been at the forefront of enterprise software companies in both corporate and start-ups environments for more than two decades. 

During his time at Salesforce and Oracle, Peter oversaw market development and strategy, revenue growth and profitability as well as global sales partnerships." 

Now call me crazy but there have to be some internal disagreements on the market strategy which led to his exit. Maybe Thunderheads provide better salary with his new title "Executive VP of North America"? Or maybe Thunderheads have a better offering to Whispir? Whatever the reason, it does not bode well for Whispir when a senior exec leaves. I am worried that they might not keep senior talent in the business long-term. 

Whispir's new strategy in North America is targeting SME/SMB. Hence they hired new people for the job. "New senior personnel appointments include Aled Miles as a US-based Non-Executive Director and David Gilbert as VP Americas". I will pay close attention to how long David stay with the business. If Whispir changes the strategy again, then I am selling as my valuation is based on success in the North American market. 

Rapid employee turnover in North America is very concerning especially at the senior level. They have plans to increase the headcount to 55 over the next 3 years, so that means they have intentions for growth. However, if the senior executives keep rolling every 9 months, it is a red flag for North American growth.  

Whispir is being very sly by not mentioning Peter Gehl leaving the company and joining a competitor called Thunderheads. 

 

 

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#History
Added 6 months ago

Whispir founded in 2001 is a workflow communication as a service company that provide tools to entities (public and private) to drive the highest engagement from their customers. The company operate in the intersection of 3 markets (operational communications, customer engagement and crisis communication). They target entities with customers categorised in 3 tiers (small, medium, enterprise). Their customers operate in diverse sectors; Government, banking and finance, insurance, transport and logistics, utilities, telecommunications, emergency services, education, healthcare etc... They are building a complete overview of the customer using AI to provide personalised engagements with brands.

Whispir have prioritised communication intelligence for prediction, detection and automation. They are reinvesting heavily on R&D to build products that are 10x better than the current market. In their 5-year roadmap they plant to transition from product leader -> monopoly -> Indispensable communications platform providing rich datasets.   

Their products are customisable workflows that entities can use to communicate with their customers. In a recent presentation by the head of product – Brad Dunn, he talked about Whispir being in the middle when comparing complexity and user control. The attached diagram emphasis their mission.

 

 

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#Bear Case
Last edited 2 months ago

Doing a quick google search of "Online Communication Platforms" an absolute truckload of platforms, apps, and lists come up.  This shows how non-existant the moats of these businesses are, as well as the potential for consolidation.  Obviously the barriers to entry are low, and can be developed in house.

It is cheaper and faster to launch a ready made platform than develop an app which is part of WSP's value proposition.

They have a 7% customer churn rate, which considering the Bat flu pandamic isn't that bad, however, it is about 5% higher than I would like it to be for an 'essential' kit.

They are a bit like a bindi.  Their growth depends on riding in the socks of their channel partners, such as Telstra, Twilio, StarHub etc where most of their sales come from.  This allows them to expand.   Their customers, Telstra, Twilio, Foxtel, Disney etc help them grow also by growing themselves.

Perhaps Covid made WSP's offering essential in alot of ways and the future may not be nice on the other side of this, affecting my valuation forecasts.

 

 

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#Business Model
Added 6 months ago

The business model is monthly SaaS subscription that have different pricing based on the entities’ needs. The repeatable Single use product average $2,291/month where the use case is for autonomous deployment of repeated messages like notifications and reminders. The next tier is the smart bundle option averaging $7,239/month, where the customer can combine workflows to deploy targeted messages to their customer base. The Final tier is the enterprise solution option averaging $15,694/month, where organisations can use Whispir to deliver end to end messaging. In this solution, organisations can work with Whispir to integrate their dataset with the Whisipir API to gain further insight into their customer.  The MRR is not fixed pricing, the subscription charges varies between customers. Customers that use their products extensively pay higher transactional fees on their subscription. 

From their business model, it is evident that a key future growth driver occur when customers move from 1 use case to 4 or more use cases. That is going from Single use to Enterprise. Looking at the attachment in this straw, it show last year’s ARR broken by Industry. Whispir has secured very large companies like Coco-Cola, Nab, APA Group to the platform. Those companies are currently utilising a single use case workflow. The potential for Whispir to convert these companies into Enterprise users will significantly increase their ARR, thus lower CAC. 

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#Business Strategy
Last edited 6 months ago

Whispir currently have 558 customers as of Q3 FY20 in a range of sectors. Their strategy is to land and expand through existing customers and partnerships. ANZ encompass 80% of total revenue with Asia comprising 15% and USA making up 5%. To be successful, Whispir need USA and Asia to make up 80% of total revenue by 2030.

The go-to-market strategy for Asia is to focus operations on Singapore and Indonesia. Then expand to Philippines and Thailand through channel partners: Starhub, Telkom Telstra, IBM and Indosat Ooredoo.

The go-to market strategy for USA is to leverage existing partnerships with Carahsoft, Vonage and AWS. The USA market is also the largest opportunity and they rely on blue-chip customer referrals and partnerships to expand.

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#Bull Case
Last edited 2 months ago

Whispir is a SAAS communications company.  They have a large range of international customers, including Virgin, Disney, Foxtel, AGL, Fire and Rescue NSW and WA,  NZ Police, recently the Victorian Government among others.  WSP:ASX basically takes the many ways customers communicate with companies,(SMS, Facebook, Email, Twitter, Push) and puts it all in one place...So that a staff member can respond via one platform to all others.  WSP makes it easy to use with no coding experience needed, drag and drop designer, and other features.

They seem to be aiming for large international companies, and have partnered with Venture Capital to help grab some of the market share.  I do like that they are after large companies and government bodies as that should provide them with with some "feathers in their hat", both in regards to sales and financial stability.   This could be why their sales growth is  'slow', because the big fish are harder to catch

In their 2020 Annual Report they had 124.1% customer REVENUE retention, and that the TAM that WSP can tap into "might be" $170 Billion in 2024.  Not saying that they are going to get 1% of that, but a rising tide lifts all boats might put WSP in the right industry.

Ways that companies use WSP are, staff rostering/timetables, communicating with Job Applicants, automating account enquiries and service issues, updating the public on fires and emergencies.  The bigger the companies the more important this software is.

The programs features obviously can be tweaked to customers needs and new addons developed.

About 79% of their revenue come from Australia and N.Z.  (an increase of 24% y.o.y), 17% from Asia (up 44% y.o.y) and about 4% the US and Switzerland. 

This company is surprisingly easy to undersand and pretty obvious when you start researching it.  

They are also trying to upgrade their communications platform to be intelligent.  This increases their use case, and may add to the bear case if its not executed well.

**ALL OF THIS INFORMATION HAS NOT BEEN CHANNEL CHECKED AND HAS BEEN TAKED FROM WHISPIR**

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#ARR Growth
Added 6 months ago

It comes no surprise that ARR growth is correlated to customers extracting multiple modules and interactions. The more use cases, the higher the recurring revenue. Thus, from the metric below, we are starting to see it happen. Especially the growth in ARR from the latest cohort. New customers have been using Whispir extensively as shown in the spike during 1H 2017 to 1H 2020. Looking at growth rates in the product suite, customers with single use are transitioning to smart bundles and enterprise solutions. The Average MRR for all products grew during 1HFY19 – 1HFY20. The single use and Enterprise grew the fastest on average 24%. This means that customers are paying more for Whispir’s products.        

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