VIDEO IS POWER, QBRICK in the beginning of a positive trend
2021-11-17 15:10, Edited at: 2021-11-22 11:14Please note: Community posts are written by its members and not by Redeye’s research department. As a reader you’re always encouraged to critically analyze the content.
Calculating with an annual revenue growth of 30% (CAGR), Gross Margin (GM) at 80%, quarterly investments of 2,5MSEK in digital infrastructure should result in a comfortable cash position until cashflow breakeven in 2023/2024. This justifies a fair value of 17,5 SEK/share based on 2024 estimated numbers or a return for the investor of close to 300%, based on todays share price.
Qbrick, a Swedish SaaS company, leading provider of video engagement services to private and public sector in the Nordic countries with the broadest range of service in the market. With the demand for engagement video services in the market, local presence in Copenhagen, Helsinki, Oslo, headquarter in Stockholm, highly skilled staff, low churn rate, well recognized customer base who confirms the quality what the company stands for - Qbrick should be able to rapidly grow coming years.
The market and customers
From a marketing point of view, being successful and grow your business it’s all about to encourage and engage customers to enhance the experience for the end user. Based on research from Wyzowl (independent research company) the knowledge of using video as an important marketing tool has increase 40% from 2016 to 2021. Qbrick offers one stop shopping within video and supports customers Fortum, Regeringskansliet, Sandvik, Danske Bank, Polarn & Pyret and Stortinget (to name a few) to either increase sales or communicate more efficient.
Except the fact videostreaming market are growing globally CAGR 20%, companies (in particular municipality, county council and other organizations controlled by the government) are becoming more safety conscious, data shall stay within the country or Sweden. The Schrems II case are an advantage in the procurement process and will facilitate a successful dialogue due to Qbrick use datacenters in Sweden where data are being stored.
Peers in the market are Bambuser and Streamify who are currently valued at much higher multiples compared to Qbrick. Bambuser valued to Price / Sales 30 (price per share divided with market value per share also known acronym P/S) with its current market cap 4 billion SEK and revenue ~ 105MSEK in Q1-Q3 2021. Bambuser are growing and can clearly show the potential in the Livevideomarket however the growth comes to a cost and the company presents a loss of ~ 150MSEK the same period. No need for further cash injections seems to be required (ref. recently published Redeye analysis).
Streamify share price has the recent week surged and the P/S are well beyond 60, net sales below 1MSEK in Q1-Q3, losses same period at -6MSEK, recently a contribution from current shareholders of 10MSEK diluted the shares with +25%. Estimated amount of shares should be 6,8M and amount of new shares the market values the company to almost 70MSEK, close to 50% of Qbrick market value (180 - 37 = 143M in market value). CEO of Streamify confirmed the company will cope with cash additional 12 months. What happens next? Additional dilutions?
Are Qbrick share priced at a fair value?
Financials
Regarding the financials its important to understand the company have been on a journey in 2021 to change character of the customer base from low margin/high-cost type of streaming customer to current base. This exchange Qbrick confirm as completed in the Q3 2021 report. We need to dig deeper in the report to understand its more than only compare with the previous quarter. The consequence of this exchange shows a rather flat revenue in Q3 compared to previous period BUT increased gross margin from previous 74% to 80%. Doing this exchange was the right decision and going forward Qbrick can present a positive MRR trend supported by high GM numbers.
According to the financial Q3 report published 2021-11-03 Qbrick confirmed being on the right path with 49% increase in customer growth Jan – Sep 2021 (previous base ~100 customers and therefore +49% are excellent performance). In addition we can read:
- Organic growth +10%.
- Secured in 2021 several contracts with Norges riksdag (Stortinget), Danske Bank, Norsk Rikstoto, Ropo Capital, business magazine Børsen.
- Development of the Qbrick 360 Videoshopping where several new customers boarded Qbrick’s platform in 2021 Polarn o Pyret, Ytrade Group to name a few.
What to expect now?
Continuing this journey of customer intake, keep the GM at 80% and investment approx. 2-3MSEK/quarter with this we estimate a CAGR of 30% revenue growth (excluding acquisitions) coming years a fair value of the share is 17,5 SEK based on 2023/2024 numbers i.e. the valuation should be affective from 2023 (use estimated numbers in 2023 for our valuation of 2024).
Based on today's traded share price of 4,2-4,5SEK (traded at P/S 5,5-6,5 or almost 5 excluding cash 37M) this are close to 300% potential in increased value or return on investment.
The investments in the platform and recruitment seems to be rather moderate with 2-3MSEK / quarter. Which are very good for the investor because high ambitions in rapid increase of revenue are costly on short term. Most probably there will not be a need for cash injections. Cash was recently reported just below 40MSEK and with the estimated and revenue growth, quarterly investment current cash position supports until breakeven in 2023/2024.
Additional information and for comparison reasons:
According to the BVP Cloud Index public SaaS companies are valued and traded at 12-14 (median) revenue multiple. In this calculation I have used x11,5 just to set expectation slightly lower. Qbrick need to proof the market a few more quarters they are on the right track. With the increase of 49% in new customer intake and a GM on 80%, we can see the door to successful performance are slowly opening up to an impressive Q4 reporting and 1H 2022.
I own stocks in the company and would be very happy to receive questions / comments. Please do your own research before investments in Qbrick and stocks in general.