LoopUp (LOOP) – H1 Results
As warned in July, these results are dire, with revenue from existing customers falling 8% YoY and platform minutes (which excludes acquisitions for the moment) only up 6% despite very considerable investment in sales. The outlook has also worsened with revenue growth and margins expected to be lower than warned in July.
They claim lifetime value to cost of acquisition of between 6.7x and 9.4x, which on the face of it means that the business should remain viable. There are four problems with this however:
- Although the company has been around in some form for 2003, the historically measured lifetime value of customers has little bearing on the value of customers obtained today. Not only is the competitive landscape completely different but so will be the type of customers currently being recruited.
- Even if they have somehow correctly forecast the lifetime value under current conditions, these are subject to change during the forecast period. There is every indication that the competitive landscape is changing and will continue to change more rapidly than it has done in the past.
- Total value figures are generally on a “gross profits” basis, and companies generally have some aspect of admin costs that also increase in proportion to sales. In particular, for LoopUp, the results show that the company has not yet scaled to profitability.
- Even if recruitment of customers is cost-effective today, that does not mean this will continue to be the case on a sustainable basis.
They blame “macro headwinds”, the “macro climate” and “macro environment”. These terms would normally refer to economic factors and indeed they talk about the “economic climate”. However the claimed effect is worldwide despite a relatively strong economic conditions.
I would suggest that instead the “macro headwinds” are specific to their core “premium remote meetings” sector. Perhaps some customers use multiple solutions for remote meetings and increasingly prefer those cheaper or free on a per-minute basis, including Microsoft alternatives. Perhaps there is an increasing acceptance of text-based meetings as evidenced by the rise of Discord.
[Edit: Whether due to specific market factors, or general economic factors, I see no reason for these to abate in FY2020 as the company expects and is presumably planning for]
The company seems to be operating in a slowing market and is destined to have ever-increasing customer acquisition costs and pricing pressure. As (many believe) a technology leader, there may be scope for acquisition and/or cutting costs to maximise profits, but this can no longer be considered a technology growth company. In a few years time perhaps Reach might be a better comparitor and they trade on a PE of 2.5 (albeit with a pension deficit).