Speqta: Increasing Cash Position to Finance Growth Initiatives
Research Update
2023-02-20
06:45
Redeye retains its positive view of Speqta despite slightly lowering its forecast and Base Case. While the net store intake came in somewhat below our expectations, with its strengthened cash position, we believe increased investments in sales will fuel growth in 2023.
FN
MS
Fredrik Nilsson
Mark Siöstedt
Contents
Investment thesis
Quality Rating
Softer ARR than Expected
Financial Forecasts
Valuation
Financials
Rating definitions
The team
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While MRR/ARR came in below our forecast, that was mainly due to a seasonality effect that we did not account for. However, the important net store intake was 4 q/q, down from 5 in Q3 and below our forecast of 9. While the absolute numbers still are small and can fluctuate between quarters, we believe accelerating net store intake is the most important metric to follow in Speqta.
After mainly focusing on product features, with new additions released just a few days ago, and quality, the focus will turn to sales in 2023. We expect Speqta to strengthen its sales team and increase its sales and marketing activities. Following the SEKc35m earn-out from Rahalaitos, Speqta has a net cash position of SEK111m. Thus, funds are not an issue at this point. Instead, Speqta needs to find the right people and sales strategy.
We lower our Base and Bull Cases to SEK17 (21) (Base) and SEK69 (85) (Bull) following somewhat reduced sales growth forecasts. However, considering the SEKc35m earn-out from Rahalaitos, we raise our Bear Case to SEK8 (7).
SEKm | 2022 | 2023e | 2024e | 2025e |
Revenues | 14.4 | 11.6 | 17.5 | 37.6 |
Revenue Growth | -46.3% | -19.4% | 50.6% | 115% |
EBITDA | -31.3 | -28.8 | -28.2 | -15.4 |
EBIT | -34.6 | -33.9 | -33.9 | -22.0 |
EBIT Margin | -240% | -292% | -194% | -58.5% |
Net Income | -34.6 | -33.9 | -33.9 | -22.0 |
EV/Revenue | -0.2 | 2.9 | 4.2 | 2.7 |
EV/EBIT | 0.1 | -1.0 | -2.2 | -4.7 |
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 17
People: 3
.
Business: 3
.
Financials: 1
MRR declined q/q to SEK110t from SEK118t in Q3. While the number of stores increased by 4 q/q to 23, the ARPC fell due to lower variable MRR. The ARR was thus SEK1.32m and came in below our forecast of SEK2.57m. However, as ARR is calculated as the quarter’s last month multiplied by 12, the revenue of Speqta’s customers in December determines the Q4 ARR (and MRR). While the first one and a half weeks of December is strong for most e-commerce stores, the rest of December is weak as customers are afraid of not getting their orders before Christmas eve. Thus, the sharp decline in variable MRR is likely a seasonality effect to a large extent.
The net store intake of 4 q/q was below our estimate of 9. While we are talking about small absolute numbers and only a single quarter, an acceleration in customer intake is necessary for the investment case. According to management, the quality of the product has improved in recent months and intensifying the initiative to gain leads and deals is the key to accelerating growth.
As Speqta received EUR3.4m (SEKc35m) in earn-out from Rahalaitos, the net cash position increased to SEK111m at the end of Q4. Thus, Speqta now has more funds to invest in product development and sales to accelerate the growth of Bidbrain. We expect Speqta to strengthen its sales and marketing resources primarily.
A few days prior to the Q4 report, Bidbrain launched new features, further improving e-commerce players ability to understand their return on advertising. The new features combine product data from Google’s Merchant Center with the performance of ads in Google Ads and allow e-commerce players to create individual campaigns for a certain product.
A study on 6 500 products by Bidbrain found that conversion rates are dependent on relative pricing compared to competitors. While it is not surprising that consumers want their products and services cheap, Bidbrain considers that effect when optimizing ad spending. This blog post by Bidbrain gives more details.
As seen below, being more expensive than competitors results in substantial drops in conversion rates and thus in lower ROAS (Return On Ad Spend), all else equal. As prices are changing constantly, it is an advantage to automate ad spend based on pricing, which Bidbrain does.
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, mainly following the lower net store intake relative to our expectations. We adjusted our assumed variable MRR slightly as well, but we believe the large deviation from our forecast was mostly due to us not considering the seasonality in the ARR.
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 6 in Q1, up from 4 in Q4. Management sees an improving pipeline, and although the timing is uncertain, we believe an improvement in net customer intake is reasonable, and we expect to accelerate further during 2023.
The new version of the Redeye Rating reduces Speqta’s rating from 4,3,2 to 3,3,1 (People, Business, Financials). The new version of the Redeye Rating is more demanding and makes it harder to receive a high rating. Thus, it should not be seen as we believe the underlying quality of Speqta has decreased.
As seen in the Financial Forecast segment, our estimates are 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 lower our Base and Bull Cases to SEK17 (21) (Base) and SEK69 (85) (Bull) following somewhat reduced sales growth forecasts. However, considering the SEKc35m earn-out from Rahalaitos, we raise our Bear Case to SEK8 (7).
Income statement | ||||
SEKm | 2022 | 2023e | 2024e | 2025e |
Revenues | 14.4 | 11.6 | 17.5 | 37.6 |
Cost of Revenue | 10.3 | 7.2 | 5.0 | 3.5 |
Operating Expenses | 35.4 | 33.2 | 40.7 | 49.6 |
EBITDA | -31.3 | -28.8 | -28.2 | -15.4 |
Depreciation | 3.2 | 1.2 | 1.2 | 1.2 |
Amortizations | 0.00 | 3.9 | 4.5 | 5.4 |
EBIT | -34.6 | -33.9 | -33.9 | -22.0 |
Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 |
Interest Expenses | 0.00 | 0.00 | 0.00 | 0.00 |
Net Financial Items | 0.00 | 0.00 | 0.00 | 0.00 |
EBT | -34.6 | -33.9 | -33.9 | -22.0 |
Income Tax Expenses | 0.00 | 0.00 | 0.00 | 0.00 |
Net Income | -34.6 | -33.9 | -33.9 | -22.0 |
Balance sheet | ||||
Assets | ||||
Non-current assets | ||||
SEKm | 2022 | 2023e | 2024e | 2025e |
Property, Plant and Equipment (Net) | -3.2 | -4.4 | -5.6 | -6.8 |
Goodwill | 0.00 | 0.00 | 0.00 | 0.00 |
Intangible Assets | 7.3 | 12.0 | 18.2 | 26.1 |
Right-of-Use Assets | 0.00 | 0.00 | 0.00 | 0.00 |
Other Non-Current Assets | 0.00 | 0.00 | 0.00 | 0.00 |
Total Non-Current Assets | 4.1 | 7.6 | 12.6 | 19.3 |
Current assets | ||||
SEKm | 2022 | 2023e | 2024e | 2025e |
Inventories | 0.00 | 0.00 | 0.00 | 0.00 |
Accounts Receivable | 5.8 | 4.1 | 4.9 | 5.6 |
Other Current Assets | 0.00 | 0.00 | 0.00 | 0.00 |
Cash Equivalents | 78.0 | 42.3 | 2.6 | -26.9 |
Total Current Assets | 83.8 | 46.4 | 7.5 | -21.2 |
Total Assets | 87.9 | 54.0 | 20.1 | -1.9 |
Equity and Liabilities | ||||
Equity | ||||
SEKm | 2022 | 2023e | 2024e | 2025e |
Non Controlling Interest | 0.00 | 0.00 | 0.00 | 0.00 |
Shareholder's Equity | -57.1 | -91.0 | -124.9 | -146.9 |
Non-current liabilities | ||||
SEKm | 2022 | 2023e | 2024e | 2025e |
Long Term Debt | 0.00 | 0.00 | 0.00 | 0.00 |
Long Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 |
Other Long Term Liabilities | 0.00 | 0.00 | 0.00 | 0.00 |
Total Non-Current Liabilities | 0.00 | 0.00 | 0.00 | 0.00 |
Current liabilities | ||||
SEKm | 2022 | 2023e | 2024e | 2025e |
Short Term Debt | 0.00 | 0.00 | 0.00 | 0.00 |
Short Term Lease Liabilities | 0.00 | 0.00 | 0.00 | 0.00 |
Accounts Payable | 14.0 | 14.0 | 14.0 | 14.0 |
Other Current Liabilities | 0.00 | 0.00 | 0.00 | 0.00 |
Total Current Liabilities | 14.0 | 14.0 | 14.0 | 14.0 |
Total Liabilities and Equity | -43.1 | -77.0 | -110.9 | -132.9 |
Cash flow | ||||
SEKm | 2022 | 2023e | 2024e | 2025e |
Operating Cash Flow | -23.1 | -27.1 | -29.0 | -16.2 |
Investing Cash Flow | -7.3 | -8.6 | -10.7 | -13.2 |
Financing Cash Flow | 0.00 | 0.00 | 0.00 | 0.00 |
Disclosures and disclaimers
Contents
Investment thesis
Quality Rating
Softer ARR than Expected
Financial Forecasts
Valuation
Financials
Rating definitions
The team
Download article