Growing GMV 300% YoY & Cashflow Positive…Bare with me here for the next 1,000 words we are going to get into the weeds a bit here. These platform as a service businesses are all about scale and driving traffic through the platform. The fact the stock is back to where it was before the last Q creates the buying opportunity.
Let’s start big picture. The biggest Tailwind for them is the bounce in housing in both the US and Canada from low 2018 levels as interest rate have backed up and have revived the housing market.
Digging into the Micro, the company has done a great job of laying out their “Key Performance Indicators” – KPIs on their corporate site (
https://www.urbanimmersive.com/gross_vol_map?lang=#)
The fact that they lay out this up to the day performance metrics provides great insight into the up to the day performance of the business, I will give you a hint.
The business is taking off. Geographical Revenue Mix The Business is 60/40 in favour of US based on volumes relative to Canadian. Digging a step deeper 20% of its volumes still comes from Quebec followed by 8% Ontario. South of the Border They are big in the hot markets of the US markets. I will just highlight 6.5% Colorado and 15% in the Southeast (Florida, Georgia, South Carolina).
IMPACT: Given that their biggest volume region comes from the hottest area in the Canadian housing market in Montreal where prices are up over 5% YoY. (Listings follows Price) and Toronto has now shifted back positive on a YoY basis
With over half their business South of the border helped by Tourbuzz deal in the hottest area of the US (Southeast) as people flee high SALT states of New York and New jersey bodes quite well.
Estimated Monthly Gross Merchant Volume This is where things get BULLISH for this platform as a service company. Take the month previously ended.
In April GMV was a record of $982k up 296% YoY!!! This up to date data is so valuable. The last Q reported was a December quarter end. Since then, if we look to the 4 months in 2019 so far (that haven’t even been reported yet)
GMV on the platform has been $3.287M which is up 309% YoY!!! – BULLISH IMPACT: Yes the majority of this is driven by the acquisition of Tourbuzz, more importantly they have already stated that the core organic growth of the platform is growing aprx. 30% on a YoY Basis.
This growth in GMV should continue to hit record highs throughout the Spring/Summer Housing buying season. Very easily could see over $1M/Month. Just watch that daily tracker.
Operationally Speaking Its all about cashflow/EBITDA generation here. Given that they were just slightly EBITDA negative in Q1 in the fall/winter in the slow season and have already identified $1.4M annual costs savings that can be taken out of the business bodes quiet well for the future.
Take the next reported Q for example. GMV totaled $2.305M for the Q up 8% QoQ from previously reported Q. So if they can add 8 – 10% to the top line or $100 – 150k to the top line while having the ability to cut $300K/Q in costs you can easily see how quickly the leverage in the business model appears and the cashflow starts to flow.
Especially as the focus on higher margin revenue that generates gross margins greater than 50%!!! – BULLISH Question is what percentage of revenue UI generates based on each GMV dollar. Let’s look back to see if we can find the answer. If you look at the last 4 Qs (Q2 75.17% of GMV, Q3 57.77% of GMV, Q4 54.13% & Q1 60.48%). Works out to 61.89% of GMV as a percentage of Sales for the last 4 Qs and 57.30% of GMV as a percentage of Sales since Tourbuzz acquisition.
Seeing that they are going to do 10 – 12M up 110% YoY at the midpoint in GMV this year you can see how the revenue ramps pretty quickly… Balance Sheet This has to be addressed, yes they are going to need additional capital. No way they raise it down here. Sub 0.10/share. The company has the leverage over the next 6 months or so as they will be cashflow positive over the summer months so there is no immediate need for capital.
The convertibles are termed out till July 2022 and a floor price of 0.10/share. So I don’t see them raising equity with a share price under 0.10/share.
The Long term debt doesn’t mature either to August 2021 and the interest rate isn’t ridiculous, yes they are not within covenants but given the growth they are putting up and generating positive cashflow and it being secured by Export Development Canada I don’t see it being called.
All that said, that is what creates the opportunity in the name. The name should not be trading below 0.10/share. If you are growing greater than 100% on a YoY basis and generating positive cashflow you can grow out of you balance sheet problems.
Projecting Out Put it all together now. $10 – $12M in GMV or $11M at the midpoint and 60% of GMV as a percentage of Revenue gets me to a revenue target of $6.6M.
Put a 55% gross margin average on that $6.6M revenue figure gets me to $3.63M Gross profit Dollars.
Take out $(500 - 750)K a quarter is operating cash expenses on a normalized basis.
Leaves us over 1M in EBITDA. Clearly, they are going to continue to have to invest in the underlying platform that could drive up the OpEx higher than what I have in those numbers. This just easily lays out a very reasonable case how the core business can scale profitably given its current state can generate significant EBITDA and cashflow.
Especially when you consider and future organic growth from this point should fall directly to the bottom line due to the inherent leverage in the business model.
In Conclusion, if they can execute like they did in the last Q reported and deliver those stated cost synergies and keep growing GMV like they have in 2019 the name is easily a double to 0.15/share.
Just follow GMV on their site… that’s all you need to look at to see how they are doing. Looking pretty good in 2019!!! LONG