Pushpay could be as successful as Xero if it changes one thing, says analyst

Clare Capital managing director Mark Clare

Clare Capital's Mark Clare discusses Pushpay's annual results.

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Pushpay Holdings [NZX:PPH] could be as successful as Xero if it finds other markets for its technology outside the US faith sector, an analyst says.

The mobile payment app developer’s net loss widened by 94% from $US13.1 million to $US25.3 million, and operating expenses increased 133% to $US44.3 million as the business scaled up and new products were developed.  

The company's share price has dropped about 7% since the result was announced, to $1.64.

Pushpay’s annualised committed monthly revenue (ACMR) increased 158% in the year to March 31 to $US50.5 million.

Its average revenue per merchant (ARPC) increased 44% over the fiscal year to $US625 a month, and customer numbers were boosted 79% to 6737 (97% of Pushpay’s customers are in North America).

Pushpay counts 10 of the top 20 and 36 of the top 100 largest churches in the US as customers, including the country’s largest church, which has more than 39,000 average weekly attendees.

Staff numbers increased 75% over the year to 376.

Pushpay has cash and available funding lines of $US13.4 million, up 20% on the year before, after raising $A40 million in October through a private placement.

The company was named by Deloitte the fastest-growing company in New Zealand and the 10th fastest growing technology company in Asia Pacific. Last week it won the NZ Hi-Tech Company of the Year Award at the Hi-Tech Awards.

“The US faith sector represents a substantial opportunity and as we continue to execute on our growth strategy, we remain in a position to achieve $US72 million in ACMR and break-even on monthly cash flow,” before the end of the calendar year, chief executive Chris Heaslip says.

It plans to do this through tweaking its products and expanding from a direct sales model to a field account sales model.

“Our clear growth strategy, investment in people, product and processes, combined with the largely underserved target market of the US faith sector, has driven our success to date.”

Growing faster than Xero
The company’s growth has been faster than that of Xero’s when it was at the same stage, Clare Capital managing director Mark Clare says.

One of the metrics software-as-a-service companies to measure growth is “T2D3,” which is when a company reaches $US2 million, then triples its revenues for two years and doubles it for three years after that.

“Pushpay is ahead of that growth profile and has signalled it will be beyond $100 million at the end of the calendar year. They're also signalling break-even at the end of financial 2017. We think the break-even guidance may be the bigger challenge of the two,” Mr Clare says.

Pushpay has the potential to be as successful as Xero but the biggest hindrance it has is the US church market is “certainly not as big” as the online accounting market Xero chases, he says.

“One of the key things we’d like to see – which would potentially drive the share price higher – is if they can show there are other verticals beyond the US faith sector that would take up the product at the level US churches have.”

Mr Heaslip says he is often asked about expansion and whether Pushpay will move into new sectors.

Pushpay’s core software could be repurposed for education and not-for-profit organisations – especially if they are linked to US churches – but this isn’t a priority, he says.

“We have no shortage of opportunities but we see Pushpay delivering on its targets and succeeding long-term by remaining focused on the US faith sector and investing lightly in other opportunities so as not to distract our team.

“The US faith sector represents a large, under-served market with minimal competition and with only 2% of the market, Pushpay is just scratching the surface of the revenue opportunities.”

Pushpay still makes small investments in bill payments (it is running pilots with Watercare and AMP), and has 80 schools on board.

The company processed 6.1 million transactions over the year to March 31, compared to 1.9 million transactions last year.

Graphic source: Clare Capital

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Beautiful graph at the bottom right there. And everyone thought there would never be another Xero...

“Pushpay is ahead of that growth profile and has signalled it will be beyond $100 million at the end of the calendar year. They're also signalling break-even at the end of financial 2017."

I have always preferred to view Pushpay as the next Diligent, whereby the target is profitability over pure growth via cashburn. With $100M+ USD revenue and a growing cashpile, Diligent was taken over by Insight Venture Partners' for US$4.90 (NZ$7.39) a share, valuing Diligent at around $941 million NZD. Pushpay is already targeting $72M NZD ACMR by year end, with a cashflow positive situation not far behind. With a market cap of $430M NZD @ 172, the market is clearly being conservative.

As per the other growth avenues, it is obvious that if the continued takeover (read: cake-walk) of the USA Church sector continues, while cash outflows have plateaued, then a growing cashpile will allow Pushpay to grow organically into the other target sectors already outlined: education and non-profit. That means no/little further dilution and a building of shareholder wealth in a steady manner.

One final note - as per the FY report, Pushpay has inked a deal with Intuit, Xero's biggest rival, and dominator of the US market. Hope Mr Drury isn't too jealous! :)

Disc - Shareholder. DYOR.

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I knew the faith sector in the US had legs, but got to say I was a doubter of pushpay. Definitely been proven wrong and great to see another kiwi company cutting it in the US.
Fantastic execution and focus - with so much growth available in this vertical
and with the ability to move into another vertical in the future its great to see the next generation of kiwi SaaS companies making its mark.
Exponentially better for NZ's economy than tourism and housing.
Congrats to all involved.

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No argument they have over-delivered in a narrow sector. And well done. I do worry though that the disruptors can in turn be disrupted.

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