Technology

Another record quarter moves Dropsuite closer to profit

Wed 20 Apr 22, 12:39pm (AEST)
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Key Points

  • Dropsuite delivers a 71% increase in annual recurring revenue (ARR) on previous period
  • The company is benefitting from strong industry tailwinds and a well-capitalised balance sheet
  • Some Australian software analysts forecast Dropsuite to turn a profit in 2022

Dropsuite (ASX: DSE) was up 2.17% in early morning trading following revelations the small-cap cloud-based website and database backup and monitoring service had delivered annual recurring revenue (ARR) of $17m, a 15% increase on the prior quarter and a 71% increase on previous period on a constant currency basis.

Highlights with today’s market update included:

  • Users increased 81k to 730k up 13% quarter-on-quarter and 55% on the previous period.

  • Monthly average revenue per unit (ARPU) of $1.95 was up 2% quarter-on-quarter.

  • Product gross margin was 63%.

While normalised net cash outflow from operations of -$0.25m, reversed the trend of previous positive cashflow quarters, the March quarter contained several one-off cash payments including annual bonuses, insurance renewals and other subscription services.

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Momentum

Commenting on today’s update, CEO Charif El Ansari was encouraged to see the momentum delivered during 2021 continue in the first quarter of FY22.

“We have again delivered a record quarterly ARR, and importantly have expanded our user base and further improved our ARPU.”

As our business continues to expand, we want to ensure that we have the foundations, systems and people to drive sustainable growth.”

With both a significantly bolstered senior management team, strong industry tailwinds and a well-capitalised balance sheet, El Ansari believes the company is well positioned to drive further growth over the course of FY22 and beyond.

Outlook

With cash on hand of $21.1m, management reaffirmed a positive cashflow outlook for FY22 and remains well funded to progress acquisitions and internal product development initiatives.

During the quarter, the company implemented cost saving initiatives in storage which resulted in gross margin increasing from 62% from 63%, and management expects further improvements throughout 2022.

Management expects strong market tailwinds from data security and regulation to remain with a growing pool of Microsoft 365 and Google Workspace users, expected to exceed 570m by 2026, providing a significant growth opportunity.

Over FY22 the company plans to focus on:

  • Continuing to deliver ARR growth via existing partner ecosystem and strong sales pipeline.

  • Achieving continued operating profitability and positive cash flow in 2022.

  • Driving product innovation to maintain a leading position as a backup vendor of choice.

  • Continuing to invest in talent bench-strength as well as sales and marketing expansion.

  • Advancing high conviction M&A opportunities which leverage existing internal growth and take advantage of strong market tailwinds around data protection.

Coverage

Since early March, the share price has risen by around 40% from $0.170 to $0.240.

Based on current momentum, some Australian Software analysts are forecasting Dropsuite turning a profit of $1.2m in FY22. 

What brokers’ like about Dropsuite is the lack of debt on its balance sheet - rare for a loss-making growth company – with the company currently operating purely off shareholder funding.

Top 20 shareholders own around 70% of shares on issue.

There is no consensus on Dropsuite.

Canaccord Genuity has a Strong Buy on the stock, and based on Morningstar’s fair value of $0.310, the stock appears to be undervalued.

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Dropsuite share price over three months.

 

Written By

Mark Story

Editor

Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content.

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