Updater Inc. (UPD.ASX; $0.23/sh; ~A$100m market cap; A$24m cash)

Transcription

1 Dec 15 Jan 16 TALKING POINT Updater Inc. (UPD.ASX; $0.23/sh; ~A$100m market cap; A$24m cash) On track to become the dominant player in the home relocation industry Recommendation Previous SPEC BUY N/A Share Price (A$) $0.23 ASX Code UPD 52 week low - high (A$) Capital structure Outstanding shares, as CDIs (M) 427 Market Cap (A$M) 98.2 Net Debt/(Cash) (A$M) EV (A$M) 74.3 Options (M) 78 Fully diluted mkt cap (A$M) Av Daily Volume ('000) 875 Board David Greenberg Ryan Hubbard Grant Schaffer Antony Catalano Chairman and CEO CTO and Executive Director Non-Executive Director Non-Executive Director Major Shareholders David Greenberg (CEO) 29.0% U.S venture capital funds 12.0% Ryan Hubbard (CTO) 10.0% Grant Schaffer (Non Exec Director) 7.0% Share Price Graph Share Price $0.36 $0.34 $0.32 $0.30 $0.28 $0.26 $0.24 $0.22 $0.20 Talking Point mostly discusses stocks for which Foster Stockbroking does not provide formal research coverage. It combines both the dealing desk's market view and basic research analysis. The aim is to offer clients additional investment ideas that lie outside the firm's universe of formally covered stocks. Occasionally, some stocks under formal research coverage will also be discussed in Talking Point. Volume 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Recent entrant to the ASX, specialising in home relocations Updater (UPD) listed on the ASX in late 2015, following a successful $22m IPO at $0.20/CDI. The Company also completed a A$6m pre-ipo in September In the 5 years prior to listing, the Company successfully developed proprietary technology and formed relationships to secure a leading position in the new mover market in the US. The mover market is massive, with 17m households relocating p.a. in the US alone. The average American moves a staggering times throughout their lifetime. UPD s online platform provides movers with a seamless process to enable transferring of utilities, forwarding of mail, updating of accounts and the many other tedious tasks associated with relocation. The typical mover wastes around 10 hours reaching out inefficiently to individual businesses currently to update their records etc. UPD has successfully partnered and integrated with hundreds of real estate companies in the US (from agencies to property management companies), who are the key contact point with new movers. The real estate companies offer the Updater platform (branded for the real estate agency, for example) to their clients as a value-added tool, in turn paying UPD an annual subscription fee. Movers pay nothing for the use of the service, however they must be invited by their real estate company to use the platform. Engagement is typically very high from the mover, given the platform is provided by a trusted source (i.e their real estate agent). Growing market share, foundation built and time to scale In our view, one of the key attractions to UPD is the 5 years spent building the tech and developing hundreds of relationships with real estate companies (and integrating with their back-end software systems, not an insignificant task). As a result, UPD has a highly defensible position. Since launching its integration platform in February 2015, the Company has impressively increased their market share of processed moves in the US from 0% to almost 3% in 11 months. UPD s ambition is to reach a market share of 5% by end of CY2016, then unlock a massive revenue opportunity. That is, big corporates are currently spending an estimated US$50b annually on archaic methods (e.g store coupons via mail, TV advertising and internet) to target new movers, who typically make lucrative long-term spending decisions at the time of relocation. The biggest issue with existing practices is that they are not targeted and are received after the mover has already made these long-term spending decisions. UPD s planned Business Product will provide businesses with the opportunity to communicate with movers at the right time, in turn increasing ROI significantly. The Business Product is expected to further enhance the Mover Product given the communication will be contextual and relevant to the specific mover. Our understanding is that many corporates have already expressed interest in paying to access the Updater platform. Big prize awaits for a market leader in a massive market In our view, UPD is extremely well placed to become the dominant player in the new mover market, given the established technology and relationships in place, and growing market share. Following the recent IPO, UPD is very well funded with almost AUD$24m in cash. We start our coverage of UPD with a Speculative Buy recommendation. As more detail is released in respect of the Business Product and commercialization in 2017, we expect to conduct more detailed valuation analysis. We do however highlight that if the Company becomes the dominant player within the industry, the prize is a multi billion dollar valuation (as has been seen historically with stories such as Carsales.com, REA Group, Seek.com.au, etc).

2 Online platform for use by movers, real estate companies and business Founded in 2010, UPD is New York City-based and was backed by leading venture capitalists SoftBank Capital, IA Ventures and Second Century Ventures (National Association of REALTORS strategic investment fund). In the 5 years prior to IPO, the Company successfully developed technology and formed strategic relationships with real estate agencies, property managers and moving industry participants to gain access to the new mover market in the US. The new mover market is massive, with 17m households relocating p.a. in the US alone. UPD s online platform provides movers with a seamless process to enable transferring of utilities, forwarding of mail, updating of accounts and the many other tedious tasks associated with moving house. The typical American mover wastes around 10 hours reaching out inefficiently to individual businesses currently to update their records etc. UPD has successfully partnered and integrated with more than 325 real estate companies in the US (across 46 States), who are the key contact point with the new movers. The real estate companies essentially offer the Updater platform (branded for the real estate agency, for example) to their clients as a value-added tool, in turn paying Updater an annual subscription fee. The platform is great for real estate agents because it enables them to stay top of mind, generate referrals, increase likelihood of retaining clients, etc. UPD makes it very easy for real estate companies to customise and brand the Mover Product experience (important for on-boarding additional agencies). Figure 1: Updater s Mover Product Source: Updater Inc

3 UPD s growth in market share since launch steadily rising, targeting 5% by end of 2016 In our view, one of the key attractions of UPD is the Company s highly defensible position through building the tech and developing hundreds of relationships with real estate companies (and integrating with their bank-end software systems, not an insignificant task). Since launching the Updater product in the market in February 2015, the Company has impressively increased their market share of processed moves in the US from 0% to almost 3% in 11 months. The company has built the foundations and is now set to execute and scale. Investors primary focus over the next 9-12 months should be on UPD s market penetration (i.e market share of processed moves), rather than revenue, which we expect will be turned on in a material way in 2017 with pilot programs with national and regional advertisers. Management will communicate market share at least quarterly throughout Figure 2: Growth in market share of processed moves in US Source: Updater Inc Billions spent by businesses each year trying to reach new mover market UPD s ambition is to reach a market share of 5% by end of CY2016, and then unlock a massive revenue opportunity. That is, big corporates are paying an estimated $50b annually on archaic methods (e.g TV advertising, internet and letter box flyers) to target new movers, who typically make lucrative long-term spending decisions at the time of relocation. 80% of long-term consumer spending decisions are made by American consumers in the 6-8 weeks surrounding the move event. At this time, all brand loyalties become vulnerable. UPD s Business Product, to be launched in 2017, will provide businesses with the opportunity to communicate with the movers at the right time, in turn increasing ROI significantly. The Business Product is expected to further enhance the Mover Product given the communication will be contextual and relevant to the specific mover. Importantly for the consumer or mover, UPD will never sell a mover s data or aim to generate revenue from lead generation. We expect corporates will be charged an annual subscription fee to access the Updater platform (and data on new movers), which will demonstrate far superior ROI compared with traditional means of

4 marketing. It is likely commercialisation will commence via pilot programs whereby strong ROI can be demonstrated and set the pricing parameters for contracts. We believe the initial annual subscription fee will be able to be increased significantly upon future renewals, as the data on ROI will clearly demonstrate the immediate results of retaining existing customers to particular services (i.e. utility or banking customers) and as UPD s market share continues to increase. Updater has a revenue opportunity in the hundreds of millions given marketing spend of ~US$50b annually targeting new movers. UPD are seeking to acquire a share of that inefficient spend reallocated to using their platform to generate increased ROI while improving the moving experience. Typical corporates expected to use the Business Product include insurance companies, banks, supermarket chains and cable companies. Figure 3: time UPD will enable big corporates to communicate with the right movers at the right Source: Updater Inc High quality Board and management team The team of UPD (26 employees), all NYC-based except for the sales team, are of exceptional quality and primarily led by: o o David Greenberg (Founder and CEO): After experiencing the frustrations with moving first-hand, David founded Updater in David previously practiced corporate law at the NYC law firm Cravath and owns 29% of the Company. Ryan Hubbard (CTO): Ryan has more than 15 years experience in the tech industry, having previously been CTO at YelowHammer and evariant. Ryan owns 10% of UPD and is regarded very highly within the NYC technology community. The two Australian-based Non-Executive Directors of UPD bring tremendous experience in technology and property: o Antony Catalano: Joined the Board following the recent IPO, following a sizeable personal investment. Catalano brings extensive experience in real estate and technology and is current CEO of Domain Group (owned by Fairfax Media). o Grant Schaffer: Lead seed investor in UPD and has been a Director since Ownership stake of 7%.

5 Conclusion: First mover advantage and established position within the market with >325 signed partnerships with real estate agencies While still in its early stages of market penetration, we believe UPD has great potential to become the leader within the new mover marker, as illustrated by its accelerating growth in market share and relationships in place with real estate agencies, property management companies and transaction management software companies. Following the recent IPO, UPD is very well funded with almost AUD$24m in cash. The Company recently stated a monthly operating cash burn rate of US$350,000, providing a long runway of funding. In this volatile market environment, we favour those technology companies that have launched their product/service (i.e not concept), attacking a big market and well capitalised to do so. UPD ticks all boxes. We start our coverage of UPD with a Speculative Buy recommendation. As more detail is released in respect of the Business Product and commercialisation in 2017, we expect to conduct more detailed valuation analysis and derive a price target. At this stage, we consider it too premature to conduct a valuation analysis until further detail on revenue model evolves. We do however highlight that if the network effect of the Updater platform takes off (more businesses drawing in more movers drawing in more businesses etc) and the Company becomes the dominant player within the industry, the prize is a multi billion dollar valuation (as has been seen historically with stories such as Carsales.com, REA Group, Seek.com.au, etc). For comparison purposes, at $1.00 UPD would have an equity valuation of A$500m, demonstrating the upside should management successfully excute.

6 FOSTER STOCKBROKING DIRECTORY Name Department Phone Stuart Foster Chief Executive Officer stuart.foster@fostock.com.au Chris Francis Executive Director chris.francis@fostock.com.au Haris Khaliqi Executive Director haris.khaliqi@fostock.com.au Martin Carolan Executive Director martin.carolan@fostock.com.au Mark Fichera Executive Director mark.fichera@fostock.com.au Mark Hinsley Executive Director mark.hinsley@fostock.com.au Marc Kennis Research Analyst marc.kennis@fostock.com.au Tolga Dokumcu Execution & Dealing tolga.dokumcu@fostock.com.au George Mourtzouhos Execution & Dealing george.mourtzouhos@fostock.com.au Foster Stockbroking Pty Ltd A.B.N FSR Licence No Level 25, 52 Martin Place, Sydney, NSW 2000 Australia General: Equities: Fax: contact@fostock.com.au PARTICIPANT OF ASX GROUP Foster Stockbroking recommendation ratings: Buy = return >10%; Hold = return between 10% and 10%; Sell = return <-10%. Spec Buy = return > 20% for stock with very high risk. All other ratings are for stocks with low-to-high risk. Returns quoted are annual. DISCLAIMER AND DISCLOSURE OF INTERESTS: Foster Stockbroking Pty Limited (Foster Stockbroking) has prepared this report by way of general information. This document contains only general securities information or general financial product advice. The information contained in this report has been obtained from sources that were accurate at the time of issue. The information has not been independently verified. Foster Stockbroking does not warrant the accuracy or reliability of the information in this report. The report is current as of the date it has been published. In preparing the report, Foster Stockbroking did not take into account the specific investment objectives, financial situation or particular needs of any specific recipient. The report is published only for informational purposes and is not intended to be personal financial product advice. This report is not a solicitation or an offer to buy or sell any financial product. Foster Stockbroking is not aware whether a recipient intends to rely on this report and is not aware of ho w it will be used by the recipient. Before acting on this general financial product advice, you should consider the appropriateness of the advice having regard to your personal situation, investment objectives or needs. Recipients should not regard the report as a substitute for the exercise of their own judgment. The views expressed in this report are those of the analyst/s named on the cover page. No part of the compensation of the analyst is directly related to inclusion of specific recommendations or views in this report. The analyst/s receives compensation partly based on Foster Stockbroking revenues, including any investment banking and proprietary trading revenues, as well as performance measures such as accuracy and efficacy of both recommendations and research reports. Foster Stockbroking believes that the information contained in this document is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made at the time of its compilation in an honest and fair manner that is not compromised. However, no representation is made as to the accuracy, completeness or reliability of any estimates, opinions, conclusions or recommendations (which may change without notice) or other information contained in this report. To the maximum extent permitted by law, Foster Stockbroking disclaims all liability and responsibility for any direct or indirect loss that may be suffered by any recipient through relying on anything contained in or omitted from this report. Foster Stockbroking is under no obligation to update or keep current the information contained in this report and has no obligation to tell you when opinions or information in this report change. Foster Stockbroking and its directors, officers and employees or clients may have or had interests in the financial products referred to in this report and may make purchases or sales in those the financial products as principal or agent at any time and may affect transactions which may not be consistent with the opinions, conclusions or recommendations set out in this report. Foster Stockbroking and its Associates may earn brokerage, fees or other benefits from financial products referred to in this report. Furthermore, Foster Stockbroking may have or have had a relationship with or may provide or has provided investment banking, capital markets and/or other financial services to the relevant issuer or holder of those financial products. For an overview of the research criteria and methodology adopted by Foster Stockbroking; the spread of research ratings; and disclosure of the cessation of particular stock coverage, refer to our website Specific disclosure: The analyst/s, Foster Stockbroking and/or associated parties have (material) beneficial ownership in financial products issued by UPD at the time of this report. Diligent care has been taken by the analyst/s to maintain an honest and fair objectivity in writing the report and making the recommendation. 2 2