“Tech” is a very broad category – most companies use plenty of tech and their operations are improved by it. But hundreds of companies on the ASX bill themselves – or are described by others – as “tech” stocks, whether they are involved in hardware or software. Within the very broad “tech” label, here are two stocks that I think have proprietary services that are growing their businesses very nicely indeed — although neither is yet profitable. One is a Software-as-a-Service (SaaS) stock, and one a phone application-based software play, but both look attractive buying at current levels.
- Ansarada (AND, $1.15)
Market capitalisation: $103 million
12-month total return: –32.8%
Three-year total return: 93% a year
Estimated FY24 dividend yield: no dividend expected
Analysts’ consensus valuation: $1.90 (Stock Doctor/Refinitiv, three analysts), $1.90 (FN Arena, one analyst)
Ansarada was established in 2006 as a cloud-based “dataroom” for corporate takeovers and mergers, an idea that came to its founders when they were working on a business sale, and realised that there must be a better way to access information in a controlled manner. At the time, either an electronic dataroom was set up, or a paper one with all the relevant people gathered in the one spot. Ansarada created a “virtual” dataroom in which authorised participants could examine and assess the relevant data and documents in a secure online repository, so that everyone working on the due diligence process prior to a merger or acquisition could easily review, share and disclose company documentation.
Ansarada came to the ASX in February 2020 through a merger with the previously listed SaaS virtual data room provider TheDocyard. The two entities combined their strengths to create a global-scale SaaS platform for information governance and end-to-end management of corporate transactions. Like many SaaS businesses, the business proposition of Ansarada was that its software could enable a process – in its case, M&A transactions – that required a huge amount of documentation and data to be sorted and processed to be conducted and completed digitally, much more quickly.
But many other information governance needs of companies and organisations in the compliance sphere have been added to the platform, which can now be considered an end-to-end Software-as-a-Service (SaaS) subscription platform. Ansarada has automated all aspects of business operations such as risk management, transaction monitoring, customer identification, regulatory intelligence and procurement, to help organisations stay up-to-date on the latest legislation and requirements.
Ansarada has launched several new products, including Always Secure Storage, a central repository with bank-grade security; Ansarada Secure Share, a connected file-sharing tool, which together allow teams to easily upload, store, organize, locate, collaborate, edit, annotate, redact, watermark and set security access before sharing documents, and even remotely destruct documents after they are shared; and ESG Pulse Check, which allows companies to collate and manage their ESG (environmental, social and governance) requirements. The software allows companies, for example, to gain full visibility over their ESG data, while also giving them insights on how to manage and present this data. ESG is a potentially massive global tailwind for Ansarada.
In the half-year to December 30 2022, total revenue rose 12%, to $26.1 million; average monthly revenue per account (ARPA) grew 16%, to $1,293 (Ansarada expresses this in “per account” rather than “per user”); and annual recurring revenue (ARR) surged 45%, to $10.1 million, with “growth across all products and regions.” Cashflow from operations and EBITDA (earnings before interest, tax, depreciation and amortisation) were both positive on an adjusted basis — adjusted for one-off costs or costs associated with prior periods – at $2.3 million and $1.1 million respectively. Active customer numbers grew 66% to a record 6,092, with 629,000 unique users, in 180 countries.
Then, in the March 2023 quarter, revenue was flat, at $12 million, but ARR grew 36% from March 2022, to $10.7 million; ARPA increased 4% to $1,360; and total customers grew 43%, year-on-year, to 6,472. Cashflow from operations was $3.1 million, making $8.7 million in the last 12 months (only one quarter in the last eight has seen negative cashflow.)
Ansarada has told the market that it expects continued growth and another cashflow-positive half-year, to June 30. The company is funding itself, through operating cash flows and cash reserves: it has no debt, with a cash balance of $20.2 million at 31 March 2023.
Generally lower M&A market activity is dampening deal volume at the moment, but Ansarada says it is making progress in building new recurring revenue streams in new less economically sensitive markets. At the moment, M&A continues to generate the lion’s share of revenue, at 81%, but “non-deals” revenue is growing much faster, at 39% to 3%. Ansarada’s long-term target is for ARR of $100 million: in FY22, revenue was $48.3 million.
AND offers a range of capabilities that solves a lot of issues for customers, and it has a wide and long runway for growth. In line with the tech sell-off that was triggered by rising interest rates, AND has more than halved in price from $2.42 February 2022 — investors can use that to their benefit to pick up a stake in an emerging Australian global leader.
- Life360 (360, $5.82)
Market capitalisation: $896 million
12-month total return: 89.6%
Three-year total return: 43.4% a year
Estimated FY24 dividend yield: no dividend expected
Analysts’ consensus valuation: $9.60 (Stock Doctor/Refinitiv, four analysts), $8.625 (FN Arena, two analysts)
I’ve written favourably about family communication platform Life360 before, and while the share price – as with most unprofitable tech/SaaS/app stocks – has come under heavy pressure, I still think the scope for growth is quite large.
Life360’s eponymous app started out as a family tracking and safety service,
provides a safety and coordination service for families, with features that range from location and communication, driving safety (including real-time speed monitoring), car crash alerts and 24/7 roadside and emergency assistance, SOS alerts, identity protection, and disaster, medical and travel assistance.
The company has added much more functionality along the way, and Life360 can now be seen as a tool for families and broader friendship “circles” to co-ordinate and synchronise their activities, through shared location data, driving summaries, individual driver reports and help alerts.
The company says the Life360 app is the 19th most actively used in the United States, and sits on almost 15% of all iPhones. It has been used to despatch 34,461 ambulances and 2.1 million help alerts, and users have driven 359 billion kilometres with Life360 crash detection.
Over the last couple of years, Life360 has made some transformative acquisitions. In April 2021, it bought Jiobit, a Chicago-based provider of wearable location devices for young children, pets, and older people, in a US$37 million ($52.9 million) transaction expanding its smartphone base into the wearable device sphere. Then, in November 2021, it bought the California-based Tile, a pioneer in finding technology, in a US$205 million ($293 million) deal, bringing on-board Tile’s Bluetooth-enabled device trackers, which can equip nearly any item — such as wallets, keys or remotes — with location-based finding technology.
Life 360 says the acquisitions of Tile and Jiobit not only dramatically expanded the total addressable market for Life360, but have also helped to drive the company’s change from a provider of a location-tracking app to offering a suite of membership services. Life360 is now used in more than 150 countries.
For the 2022 financial year (Life360 uses the calendar year as its financial year) Life360 more than doubled its revenue, to $228.3 million, as subscription revenue surged 77% including Tile and Jiobit (and 54% for Life360 alone). Global monthly active users (MAU) surged 37%, to 49 million, with US MAU increasing by 31% and non-US MAU numbers jumping 49%. Annualised monthly revenue (AMR) grew by 61%m to $224 million — this figure has more than tripled since Life360 joined the share market in May 2019.
However, 2022 EBITDA worsened by $27 million to a loss of $40.1 million, but this was attributed mainly to the acquisitions of Tile and Jiobit, and the cost of integrating of those businesses. That led to a 2022 net loss of $91.6 million.
The company said that it finished the year with a 61% increase in year on year annualised monthly revenue (AMR) in December, which accelerated to 64% in January, with the full month benefit of the “significant price increases” implemented across its monthly US iOS membership base in late 2022. The cash balance at 31 December 2022 stood at $90 million.
For 2023, Life360 expects that its core Life360 subscription revenue will grow by more than 50% year on year. Revenue is projected to be between $300 million and $310 million.
Life360 is expecting to achieve positive adjusted EBITDA, while operating cashflow is expected to be between $5 million—$10 million for the full year, and core subscription growth is expected to come in at more than 50%.
The company says it has a clear “path to profitability,” as it scales-up its integrated business. Its first target is to achieve positive adjusted EBITDA and operating cash flow on a quarterly basis, starting with the June quarter of 2023. The market will be very keen to see this achieved.
From a frothy $13.65 in November 2022, Life360 has retreated in line with the tech sector; but the announcement in January of a company restructuring and the accelerated path to profitability, and the numbers achieved in FY22, have cheered investors — the stock is up almost 20% in 2023 so far. I think Life360 is a great story that has room to grow, even though it faces stiff competition from the likes of Apple, Snapchat and Google.
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