Livetiles released their Q4 results today and the stock market did not like what they read, the share price fell ~11% (at time of writing).
At first glance of the results, things look good and there are lots of nice words like “positive cashflow” and “record quarter” and “Annual Recurring Revenue (ARR) is up 45% on the year”. However, it was immediately clear to me what went wrong.
I’ve talked before about Livetiles having achieved their growth inorganically via Capital Raises (CRs), and I think that it is this is the crux of the problem with this results announcement. If we look at this quarters’ growth of $3m, it represents 5% growth on the previous quarter or 20% annualized. Sounds great, but when we consider that there were only 24 new customers for the quarter and the average ARR per customer is $53.3k, this is only $1.28m of new customer growth – which is 2.2% growth or 8.8% annualized. Given that new customers typically spend less to start out, then spend more once they see the value of the platform and build acceptance in the organisation, it’s possible that growth is actually a lot less than this.
I feel that Livetiles shareholders are really waiting to see some significant organic growth and proof of profitability (ability to pay a dividend) before this stock will get re-rated. That said, it’s actually not a bad result when you consider the effect of COVID19, which must have had a negative effect on the ability of the sales staff to get out and do their job, despite whatever Livetiles might suggest. Still, I suppose that COVID19 is looking as though it will prevail for a long time in the USA, so one might expect more quarters of low single-digit percentage organic growth in new customers alongside a subdued share price.
What Are Livetiles Shares Worth?
The answer to this is very simple. A company trading on multiples of ARR is worth at least 4.3x ARR (assuming that there’s nothing threatening the business).
Livetiles ARR is $58.2m, putting their Market Capitalization (MC) at $244m. No prizes for guessing what the current MC is for this company (I’ll give you a clue, it’s between $243.5m and $243.7m).