Speqta: Accelerating Customer Growth & Likely Earn-out
Research Update
2022-11-14
06:45
Redeye retains its positive view on Speqta following a solid Q3 report. While the overall Bidbrain metrics were in line with our expectations, Rahalaitos and the likely earn-out of EUR~3m was a positive surprise. We leave our Fair Value Range unchanged.
FN
MS
Fredrik Nilsson
Mark Siöstedt
Contents
The number of paying Bidbrain Stores increased by five to 19 during Q3, and our forecast was a net of four new stores. Despite the better-than-expected customer intake, ARR fell somewhat short of our expectations following lower ARPC. However, both deviations were small, and Bidbrain is developing on track with our estimates. For Q4, we assume faster growth and a net intake of nine new Bidbrain stores.
With strong momentum in Rahalaitos despite the soft market conditions, Speqta expects EUR2.5-3.5m in earn-out, which will be paid in January. This is a significant improvement relative to Q2, where we reduced our expectations, assuming no earn-out. The EUR ~3m will substantially contribute to the current cash position of SEK~85m.
Our Bull Case, which our forecasts regard, remains at SEK85; see valuation section for details, and as we apply a 25% (25) likelihood of Speqta reaching the Bull Case, our Base Case is unchanged at SE21. Speqta should be viewed as a financed start-up, where product development and sales will be in focus over the next few years. Our Bull Case assumes Speqta will turn profitable in 2026.
SEKm | 2020 | 2021 | 2022e | 2023e | 2024e |
Revenues | N/A | N/A | N/A | N/A | N/A |
Revenue Growth | nm. | nm. | -49.0% | 0.4% | 49.1% |
EBITDA | 0.00 | -22.5 | -32.2 | -28.9 | -26.6 |
EBIT | -2.0 | -22.5 | -35.0 | -33.5 | -31.5 |
EBIT Margin | nm. | -84.0% | -256% | -244% | -153% |
Net Income | -2.0 | -22.5 | -35.0 | -33.5 | -31.5 |
EV/Revenue | nm. | 10.2 | 0.6 | 3.1 | 3.8 |
EV/EBIT | -144 | -12.2 | -0.2 | -1.3 | -2.5 |
Case
Early-stage Adtech SaaS solution targets key market.
Evidence
Huge market and positive feedback support significant potential.
Challenge
Customer acquisitions are typically costly.
Challenge
Huge market often equals huge competition.
Valuation
Base Case SEK 21
The net intake of new Bidbrain stores was 5 in the quarter, slightly stronger than our expectation of 4. The ARPC was lower than anticipated, and we might have somewhat underestimated the seasonality effects. Sales and EBITDA came in as expected, while EBIT fell somewhat short of our expectations. However, in a company like Spetqa, investors should focus on the Bidbrain metrics.
The market environment for e-commerce players is tough, experiencing lower consumer purchasing power and higher freight costs. As a result, many potential customers are cautious about taking on new projects. On the other hand, Bidbrain capabilities for profitable growth are especially attractive in the current market environment.
In the CEO comment, Speqta highlights its cooperation with Craft. Craft started working with Bidbrain at launch in 2021 and has since added Bidbrain to its Danish operations. During Q4, Craft plans to add another two markets. While one should not draw any big conclusions from single customers, seeing a well-known brand like Craft adding Bidbrain to additional markets is encouraging. It is signaling Craft has a high ROI on the Bidbrain investment and is satisfied with the solution. Also, it can prove to be an important reference customer.
With strong momentum in Rahalaitos despite the soft market conditions, Speqta expects EUR2.5-3.5m in earn-out, which will be paid in January. This is a significant improvement relative to Q2, where we reduced our expectations, assuming no earn-out.
As 11 out of 12 months of the earn-out period have passed, Rahalaitos has reached 95% of the minimum and 88% of the maximum earn-out. That implies EUR1.7m in earn-out. However, October, which is the remaining month, has been strong. Thus, that is why management expects EUR2.5-3.5m. The EUR ~3m will be a substantial contribution to the current cash position of SEK ~85m.
In the Q3 presentation (3:20-9:50), in Swedish, CEO Fredrik Lindros discussed what Bidbrain does and in what way. For anyone interested in Bidbrain, we believe it is well worth watching. Below is a short summary in English.
In short, it is all about increasing the ROAS (return on ad spend) or increasing sales. In case of increasing sales, the e-commerce store gets more sales for every dollar spent on ads. Thus, equal costs, higher sales, and therefore higher gross profit. In case of increasing the ROAS, the e-commerce store spends less on ads for every dollar of sales. Thus, lower costs, equal sales, and therefore higher gross profit.
In practice, Bidbrain uses the parameters seen in the picture below, such as keywords, device etc, to increase the number of total clicks and/or to reduce the number of non-converting clicks. I.e., clicks that the e-commerce store must pay Google for that do not generate any revenue.
As Bidbrain is a SaaS business in an early phase, targeting a massive market, we make a Bull and a Bear Case, and the Base Case is based on the likelihood of Speqta performing in line with our Bull Case. The figures below concern our Bull Case, where we assume Bidbrain will become a successful solution, showing strong growth for many years, and reaching profitability in 2026. We assume Shopello will gradually decline to zero as Speqta focuses on Bidbrain.
We lower our sales forecasts slightly following the somewhat lower ARPC outcome in the quarter relative to our expectations. Also, we increased the cost per employee somewhat, as we probably underestimated the composition of Bidbrain’s R&D-heavy workforce.
All in all, we lower our EBIT forecasts somewhat for each year. However, we still expect Speqta to be profitable by 2026, and our forecasts do not depend on any additional financing.
We expect the net customer (store) intake to increase to 9 in Q4, up from 5 in Q3. Management sees an improving pipeline, and although the timing is uncertain, we believe an improvement in net customer intake is reasonable.
Our estimates, as seen in the Financial Forecast segment, is our Bull Case, implying a 100% chance of Speqta reaching those assumptions. Our Base Case is based on the same assumptions but implies a 25% chance of Bidbrain becoming successful, as assumed in the Bull Case. Our Bear Case assumes that the investments in Bidbrain fail, resulting in operations closing when 50% of the current net cash is left.
Most listed early-stage SaaS companies have not managed to grow efficiently, suggesting the odds for Speqta is bad. However, Speqta has some advantages. First, it has a substantial net cash position. Second, its customer feedback is solid. All-in-all, we believe a 25% likelihood of reaching our Bull Base is reasonable as a Base Case for now. However, if Speqta performs in line with our assumptions, we will gradually increase the likelihood.
We assume Speqta, given our assumptions in the Bull Case, as a fast-growth profitable SaaS company, will be valued at a rather high multiple of 8x ARR. This may seem high, however, looking at the multiples of high-growth profitable SaaS companies (see table below), we believe 8x ARR is reasonable.
We leave all our Cases unchanged at SEK7 (Bear), SEK21 (Base), and SEK85 (Bull).
Income statement | |||||
SEKm | 2020 | 2021 | 2022e | 2023e | 2024e |
Revenues | N/A | N/A | N/A | N/A | N/A |
Cost of Revenue | 0.00 | 21.8 | 10.2 | 7.3 | 5.1 |
Operating Expenses | 0.00 | 27.5 | 35.7 | 35.3 | 42.0 |
EBITDA | 0.00 | -22.5 | -32.2 | -28.9 | -26.6 |
Depreciation | 0.00 | 0.00 | 2.8 | 1.2 | 1.2 |
Amortizations | 1.0 | 0.00 | 0.00 | 3.5 | 3.6 |
EBIT | -2.0 | -22.5 | -35.0 | -33.5 | -31.5 |
Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Interest Expenses | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Net Financial Items | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
EBT | -2.0 | -22.5 | -35.0 | -33.5 | -31.5 |
Income Tax Expenses | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Net Income | -2.0 | -22.5 | -35.0 | -33.5 | -31.5 |
Balance sheet | |||||
Assets | |||||
Non-current assets | |||||
SEKm | 2020 | 2021 | 2022e | 2023e | 2024e |
Property, Plant and Equipment (Net) | 0.00 | 0.00 | -2.8 | -4.0 | -5.2 |
Goodwill | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Intangible Assets | 0.00 | 0.00 | 6.4 | 9.0 | 12.7 |
Right-of-Use Assets | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Other Non-Current Assets | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Total Non-Current Assets | 0.00 | 0.00 | 3.6 | 5.1 | 7.5 |
Current assets | |||||
SEKm | 2020 | 2021 | 2022e | 2023e | 2024e |
Inventories | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Accounts Receivable | 0.00 | 0.00 | 5.5 | 4.8 | 5.7 |
Other Current Assets | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Cash Equivalents | 0.00 | 0.00 | 78.0 | 43.7 | 8.8 |
Total Current Assets | 0.00 | 0.00 | 83.5 | 48.5 | 14.6 |
Total Assets | 0.00 | 0.00 | 87.1 | 53.6 | 22.1 |
Equity and Liabilities | |||||
Equity | |||||
SEKm | 2020 | 2021 | 2022e | 2023e | 2024e |
Non Controlling Interest | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Shareholder's Equity | 0.00 | -22.5 | -57.5 | -91.0 | -122.5 |
Non-current liabilities | |||||
SEKm | 2020 | 2021 | 2022e | 2023e | 2024e |
Long Term Debt | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Long Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Other Long Term Liabilities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Total Non-Current Liabilities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Current liabilities | |||||
SEKm | 2020 | 2021 | 2022e | 2023e | 2024e |
Short Term Debt | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Short Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Accounts Payable | 0.00 | 0.00 | 14.0 | 14.0 | 14.0 |
Other Current Liabilities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Total Current Liabilities | 0.00 | 0.00 | 14.0 | 14.0 | 14.0 |
Total Liabilities and Equity | 0.00 | -22.5 | -43.5 | -77.0 | -108.5 |
Cash flow | |||||
SEKm | 2020 | 2021 | 2022e | 2023e | 2024e |
Operating Cash Flow | 0.00 | -22.5 | -23.7 | -28.2 | -27.5 |
Investing Cash Flow | 0.00 | -7.4 | -6.4 | -6.1 | -7.3 |
Financing Cash Flow | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
People: 4
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Business: 3
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Financials: 1
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Disclosures and disclaimers
Contents