Aim-traded Bango (BGO:93p), a provider of a state-of-the-art mobile payment platform enabling smartphone users to charge purchases made in app stores straight to their mobile phone account, releases its annual results on Tuesday, 19 March 2019 and is now in a closed period.
However, there has been some important news since I last updated the investment case ('Bango in bargain territory', 23 October 2018), the most significant of which is the launch of Bango Marketplace, a new product that boosts user acquisition and revenues for app developers and opens up new revenue streams for mobile network operators (MNOs).
Currently, app developers spend just under a third of their net app store revenues on marketing in order to find new users, increase downloads and installs, and produce more spending in apps. They can make five times more revenue from in-app purchases than from in-app advertising, but only about 5 per cent of all users actually purchase.
Finding these users is the 'holy grail' of app marketing and one that Bango is exploiting with Bango Marketplace, a product that enables app developers to direct their marketing towards selected customer audiences that are far more likely to respond, thus enabling them to choose customer segments in countries they want to focus on and generate a higher return on their marketing spend.
MNOs, payment providers and other businesses that work with Bango for direct carrier billing (DCB) publish customer segments in Bango Marketplace. So, by using Bango’s technology, they can unleash the value of their customers’ data at scale when they join the Bango-powered commerce ecosystem. There are now more than 30 mobile operators feeding data to Bango.
That’s important because the scale of the operation adds value to the customer segments that Bango Marketplace identifies, and enhances the value of the offering to app developers when they run their marketing campaigns [using these customer segments] through Google, Facebook, web banner ads or even text messaging. For instance, app developers are particularly interested in customer segments where there is clear evidence of users’ ability to pay. In pre-launch tests in the US and Asia, app developers were able to generate more than two times the number of paying users from their campaigns by using customer segments from Bango Marketplace, compared with marketing without Bango.
A win-win situation
The great thing about Bango Marketplace is that the company profits from both the app developer and the mobile payment provider. The customer segment is effectively leased by Bango to the developer for a limited period and for a specified use. For instance, a small segment used for a trial may cost $1,000 per day, whereas a segment of 1m users might be leased for tens of thousands of dollars over a one-month period.
Furthermore, there is a strong incentive for MNOs and payment providers to upgrade to Bango’s platform so that they can safely and securely monetise the vast amount of data they are holding on their customers in ways that were previously impossible. This creates an additional revenue stream, and boosts both app store sales and end user spend (EUS).
I would stress that Bango Marketplace complies with GDPR and other relevant data regulations, specifically that all campaigns run by advertisers need to comply with local laws and regulations; MNOs and other Bango partners manage permissions from the users including opt-outs, updates and rights of exclusion; and the major marketing platforms fed with data from Bango (Google, Facebook, Line etc) manage user preferences, opt-outs etc relating to ad placement on their platforms.
So, by building on its existing relationships with mobile operators, taking into account the revenue earned from early adopters, Bango’s management expects Bango Marketplace to contribute materially to revenues in 2019, alongside ongoing growth in its payment business and from the 2018 acquisition of Audiens, a developer of a cloud-based platform that collects and analyses valuable consumer data. Moreover, the cloud-based architecture supporting the new platform is highly scaleable and built to handle data related to high transaction volumes.
So why the weak share price?
Bango’s shares have drifted since my last article in the autumn and are back at my original entry level ('Bang on the money', 26 September 2016). This is mainly because the company revealed that although it turned cash profitable in the final quarter of 2018 – and even though EUS on which it takes a small fee more than doubled to in excess of £550m in 2018 – the decision to take revenue on several new contracts for subscription services as long-term higher-value annuity revenues rather than one-off upfront fees meant that it will not be cash profitable for the year as a whole.
Analyst Ian McInally at house broker Cenkos Securities now expects Bango to report a cash loss of £1m for 2018, rather than a £1m profit. He has also reined in his 2019 forecasts slightly and predicts a cash profit of £7m, pre-tax profit of £4.4m (from £5.6m previously) and earnings per share (EPS) of 6.3p. This is based on EUS doubling for the fifth consecutive year to £1.29bn, which also supports a doubling of the year-end net cash position from £3.5m to £8.6m, a sum worth 12p a share. On this basis, the shares are rated on a cash-adjusted forward price/earnings (PE) ratio of 12 for 2019.
Clearly, if Bango can convert even a small percentage of its near-term $4bn (£3bn) pipeline of EUS it’s targeting, then there should be material upside to EUS forecasts, and the revenue the company earns. Importantly, the pre-close update was positive on current trading.
True, it’s been a rollercoaster ride, but I continue to see 100 per cent-plus share price upside if Bango delivers on the 2019 estimates. I also note that the shares appear to have formed a solid base formation at the 80p level, thus offering prospects for a strong share price recovery in the event of positive news emerging on new contracts. That possibility is even more likely now given that Bango Marketplace incentivises potential customers to sign up and integrate into the Bango platform. This is a buying opportunity.
■ Simon Thompson's new book Successful Stock Picking Strategies and his second book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £2.95, or £3.75 if you purchase both books. Details of the content of both books can be viewed on www.ypdbooks.com.
