- Intense pressure on remote meetings business means first half revenue will be 13 per cent below budget and analysts reduce full-year estimates by 35 per cent.
- Analysts slash 2021 cash profit estimates by 78 per cent from £5.9m to £1.3m.
- Cloud telephony customer base rises five-fold since late March.
- Negotiations on cloud telephony contracts worth £20m at advanced stage.
A pre-close trading update from LoopUp (LOOP:54p), a London-based premium remote conference meetings company, highlights the ongoing transition of the group into a broader cloud platform services communications business.
Cloud telephony facilitates greater remote and hybrid working flexible compared with legacy on premise systems. The $15.8bn (£11.5bn) market is growing rapidly with analysts at Wainhouse Research predicting it will be worth $26bn by 2024. LoopUp's existing cloud telephony business, an expertise in Microsoft voice technology, and a differentiated voice architecture, provide the foundation to tap into this market growth as an add-on capability to Microsoft Teams. The advantages for end users is a unified calling experience, rather than using Teams for internal calls and a separate legacy system for external calls, and the ability to use the Teams app on any internet-connected device to make and receive calls. Essentially an employee’s direct dial business number travels with them.
Since the company’s annual results in late March, LoopUp has increased its cloud telephony customer base fivefold to 15 and trebled the initial deployment total contract value (TCV) to £1.7m, a sum that is expected to treble again to £5.1m as roll-outs proceed. Moreover, the company is ahead of its target to be a fully-licensed telecommunications service provider in at least 60 country jurisdictions by the end of 2021, supported by an IP backbone that interconnects with 18 regional Tier-1 carriers to deliver routing service to customers.
In the past 16 weeks, the TCV pipeline of directly sourced new cloud telephony opportunities has increased 10 per cent to £117m, with potential contracts at an advanced stage trebling from £7.5m to £20m. The directors also highlight a growing number of “material negotiations” with major Microsoft partners, systems integrators and carriers, who are seeking a platform partner with differentiated geographic coverage to bring Microsoft Teams Calling to their international customer bases. Negotiations with several of these go-to-market partners are at advanced stages, and present a scalable additional route-to-market in cloud telephony.
The growth in this new market segment is certainly needed given ongoing “intense competition outside its core professional services segment”. LoopUp’s customers are moving to more cost-effective term subscription and minimum spend contracts (up from 48 per cent at start of the year to 62 per cent now), too, but at least this offers a degree of stability.
Nonetheless first half revenue of £11.5m will be 13 per cent below budget, prompting house broker Panmure Gordon to slash its full-year estimate by 35 per cent to £20m. On this basis, expect an annual cash profit of only £1.3m (78 per cent downgrade) and a pre-tax loss of £6m, a far cry from the first half of 2020 when LoopUp reported cash profit of £12.2m on revenue of £31.9m during the early stages of the Covid-19 pandemic.
The market was unimpressed which is why the shares slumped 15 per cent to 54p, well shy of the 84p level at which I rated them a recovery buy (‘A quartet of value opportunities’, 30 November 2020). True, the accelerating momentum in cloud telephony is set to underpin a “return to revenue growth during the second half and material growth in 2022, and beyond”, but that’s going to take an act of faith. Sell.
