The death of retailing, like Mark Twain quipped when told of his printed obituary, has been greatly exaggerated.
The face of retailing has been reshaped by online internet shopping. And globally shopping malls and retailers are using the same internet tool, in this case free data, to attract and lure back shoppers.
Skyfii (ASX: SKF) gathers information on shoppers and visitors in malls, airports and universities by offering free downloads on a specific web site log in.
The data intelligence gathered by SKF provides analytics and then uses marketing software to help the venue predict and influence customer behavior. SKF has become a global leader in venue analytics, and through organic growth has over 600 customers across USA, Australia and New Zealand Africa, South America, UK, and Europe. SKF’s platforms cover a larger number of individual venues which collect more than 25 million email addresses annually.
Essentially SKF is a SAAS business model (service as software) with high recurring income, and in a maturing business revenue can be valued at 20-30 times because of its sticky nature. SKF gross profit in the early stages is around 65%. This is expected to grow significantly as SKF globally rolls out its proprietary IO platform.
So while the trade war plays between USA and China like a badly choreographed, but long missed, World Championship Wrestling match between Mario Milano and Killer Kowalski, we are on the hunt for small caps with growth opportunities, and where valuation is reasonable.
Always impressive in presentations is to talk about the addressable market. Global location analytics market is estimated to more than double, in SKF’s case, to just under $20 billion by 2023. And much of the growth will be driven by the friction between online and offline retail.
SKF’s IO platform taps data from over~40k devices across more than 8,000 venues. It comprises three components: Connect (data collection), Insight (analytics) and Engage (marketing). While Wi-Fi is the most important data set source for the IO platform, a core competitive advantage is its ability to absorb a vast number of other unique data sources , including Bluetooth, door-to-people counters, 2D/3D cameras, thermal imagery, video sources, web and social platforms, POS sales data, weather etc.
The power of this information is it offers venue operators and retailers a holistic view of customer behavior including the flow of customer traffic, impact on key sales events, and at the same time target ads at the free Wi-Fi users. SKF customers include Mirvac, Nandos, Scentre Group, Westfield, Dexus, Anytime Fitness, National Museum of Australia, Sydney Cricket Ground, Blackstone Properties and Woolworths.
Like the Nearmaps SaaS model SKF has expanded in other business verticals covering traffic footfall and customer behavior. Some of those are municipalities/smart cities, museums, sporting venues, gyms and casinos.
SKF has a current market cap of $42 million. And current revenue is expected to double to around $20 million over the next two years. Using a very conservative 4times revenue model suggests a forecast market cap of $80 million for SKY or a rough doubling of the current 16 cent share price.
The big uplift will come as SKF builds recurring revenue. The valuation multiple could increase to between 12-15 times like some of its SAAS peers. Potentially valuing the share around 60 cents each. Our Nearmaps investment experience in the past 12 months where the stock price doubled shows how highly the market rates the recurring nature of SaaS revenue. Let’s hope SKF emulates that.
Because while volatility is crashing from pillar to post in big market swings, and its euphoric to be a successful punter, as the god father of investing Ben Graham said the individual investor should act consistently as an investor and not as a speculator.