First time posting. I feel way out of my league— I’ve been reading and gleaning from all of you for a while and finally took the plunge with UPST and CRWD over the past month— Thanks to the friend that turned me on to your board.
I’ve been looking into a company I wanted to throw to the wolves here. Im not sure where they fall against Saul’s criteria—
The company is Kaleyra (KLR), a CPaaS (communications platform as a service) company who was initially operating in Italy but now has U.S offices and a fairly balanced global exposure. The company has made several recent acquisitions over the year that should place them in competition with other top CPaaS companies (Twilio).
KLR is also being added to the NYSE on 8/31 from the AmEx.
The CPaaS industry seems like one that could fit the mold for one with hyper growth through the digitalization of our world and communications systems.
My main concern is the low gross margins— and as with software companies simply not understanding the ins and outs and why this company is important versus a competitor.
I’ve made a little research sheet with some of the information all in one place.
Not sure the best way to share it but I’ll try a couple methods and hopefully one works.
https://docs.google.com/spreadsheets/d/1C1gdxFGHYQKEEeGnv7Bs…
Maybe it’s too early for this company, or maybe it falls completely out of line with what the board is looking for— I’m sure I’m about to receive a whole lot of learning— which might be the most valuable asset my ignorance offers me!
Thanks for taking a look.
21 Likes
Hey MillennialFalcon,
It’s nice to see KLR get a mention. I’ve been following it (not closely) for awhile. Basically, I think of it as a “mini Twilio.” It seems crazy that KLR is so cheap vs TWLO. TWLO is trading for about 27x revenue vs KLR trading at 2.3X (numbers from tradingview). RingCentral is another competitor also trading at a much higher multiple.
My thoughts as to why:
- It’s not American (Italian), so no “home premium”/“American premium” or however you want to say it
- It’s small. Really small. (500M vs TWLO 64B!) The big institutions probably don’t want to (or can’t) play until it passes 1B or more. Think how fast they can move in and out of TWLO or RNG.
- Margins (as you mentioned) TWLO at 54% vs KLR at 25% (and RNG at 77%!)
I could see KLR possibly being acquired, especially since they’re so small, but from what I can see they seem to have strong growth. If I’m a shareholder, I probably want to see it continue growing (and possibly start to receive some love from Wall Street) rather than a buyout.
Some Positives:
- Revenue growth - revenue growth is estimated at 53% next year (only 30% for TWLO, 23.6% for RNG)- However, I guess one could (and should) argue that they should be growing even faster off of a smaller base compared to much larger competitors like TWLO and RNG.
- Acquisitions - If you can find it, there was a great article on Seeking Alpha about KLR’s mGage acquisition. I haven’t followed the recent Bandyer acquisition, but that should increase TAM (and rev and earnings along with it), and perhaps it will bring some additional love from Wall Street.
- Price Target - For what it’s worth, analysts have KLR at $27 PT…high of $37 and low of $20. Even the low end would provide pretty great upside.
Basically, aside from being so small and preventing a lot institution money from coming in, a look at the margins likely tells the story of why it’s so cheap. 25% (est. next year) vs TWLO’s 54% and RNG’s 77% is a recipe for a cheaper stock. Again, I’m sure management has addressed it but I haven’t listened to their calls to hear why. I wouldn’t expect KLR’s multiple to catch up if margins stay that low. Perhaps they have and plan and maybe these acquisitions can help. I’m going to start following it more closely.
Zach
CMFFalcon
25 Likes
Seems intriguing.
However from your spreadsheet, I see that $10.2M of their Q2 revenue come from their mGage recent acquisition. If I subtract it from the Q2 revenue, I get $43.79M which shows that their sequential organic growth is very limited: $38.27M then $44.27M, then $39.71M and finally $43.79M.
I would expect a much higher growth from such a small company.
I’ll pass from now.
Louis
4 Likes
Thanks for replying. I guess that’s exactly part of what I’m wondering also— the mGage acquisition looks like it will nearly double their month over month growth immediately following the acquisition. ($10.2M was for one month, so a full quarter should yield over $30M versus their native $43M as you pointed out)
Is the fact that new acquisitions have put them in a growth space bad, or is it maybe just way too early to see if they can also grow organically and are investable? I certainly don’t think they were large enough to matter in the CPaaS market before these acquisitions and I wasn’t interested before they broke in to the U.S market and opened offices in the States.
I’ll keep watching over the next several quarters. I have a smallish position I decided to pick up before posting on the forum; if they discover a path to more organic growth and margin improvement maybe I’ll bring it back to the board.
2 Likes
Those are really good points, thanks for catching the limited growth. I added the Y/Y revenue growth in the spreadsheet. Prior to the mGage acquisition it was pretty limited, but seemed to grow slowly-- Last quarter saw 29% revenue growth Y/Y “organically” and 73% including the mGage acquisition (which contributed for June only).
Also, digging in a bit more I discovered part of the pay structure for a CPaaS, and KLR specifically, frontloads the year with the poorest margins in Q1 and Q2 as they essentially purchase a “block” of usable data and as they accommodate more message deliveries throughout the year their margins improve. Most of the costs are fixed and upfront, so a 29% organic increase Y/Y in one of the poorest quarters, along with acquisitions drastically increasing message delivery numbers may translate to exponentially higher growth rates. I’ll keep an eye on Q3 and Q4 and update the spreadsheet to see if there’s anything interesting happening.
Thanks for helping me dig in deeper here. This is very enlightening for me.
Q2 2021 $53.99 million 73%+ Y/Y (29% excluding mGage revenue)
Q1 2021 $39.71 million 18%+ Y/Y
Q4 2020 $44.27 million 24%+ Y/Y
Q3 2020 $38.27 million
Q2 2020 $31.20 million
Q1 2020 $33.63 million
Q4 2019 $35.63 million