It’s been a topsy turvy few months for one particular FTSE share that’s listed on the Alternative Investment Market. On 17 January, Bango (LSE:BGO) — a company that bundles subscriptions — issued a trading update. Delays in securing new contracts and $2m of unexpected costs didn’t impress investors. The company’s shares fell 40% on the day.
Fast forward to 8 April and it was a very different story. The stock rose 13.5% after the company’s results for the year ended 31 December 2023 were unveiled. In 2023, Bango reported a 62% increase in revenue compared to a year earlier.
Not all good news
But it’s still not profitable. Its 2023 loss after tax was $8.8m, bringing its total losses to date to $68.3m.
And that’s a typical problem with smaller companies. It’s a fact of business life that if losses persist, the money will eventually run out. At 31 December 2023, Bango had $3.7m of cash on its balance sheet. It also had borrowings of $7.7m. Given that it spent $18.6m during the year supporting its operating and investing activities, it seems likely that it will have to raise money soon.
Previously, a key shareholder provided a loan to support the company’s expansion. And it may do so again. But if it has to turn to shareholders for more cash, those not participating in a rights issue would see their holdings diluted.
Another issue with small companies is that they don’t have the financial firepower to withstand a sustained downturn. And with a market cap of just £92m, Bango could be vulnerable should the unexpected happen.
For these reasons, I don’t what to invest at the moment. But because I think the company has excellent growth prospects I’m going to keep the stock on my watch list.
Let me explain why.
A huge and growing market
Bango helps telecoms companies and content providers acquire and retain more paying customers by bundling subscriptions.
In 2020, its revenue was $15.7m. In 2023, it was three times higher. According to Juniper, the global subscriptions market will be worth $600bn by 2026, with 4.2bn individual subscriptions. But with so many different providers, consumers are likely to become increasingly frustrated. The idea of a one-stop shop makes sense to me.
Importantly, the company has an impressive customer list. Google, Amazon, Microsoft, and YouTube are just a few of the household names using its “digital vending machine”. This tells me that the company is good at what it does.
Bango typically charges a one-off integration fee and then earns revenue on a monthly basis. This means it has the potential to generate impressive margins. Contracts are typically of three years duration which gives it good visibility of its cash flows. It also makes money from identifying patterns in consumer behaviour. Data has been described as the most valuable asset in the world.
But despite the risks of owning shares in a small company, I’m going to keep an eye on Bango’s performance over the coming months. When I can see that the company has a clear path to being cash positive, I’m going to consider investing. That’s because I think ‘super bundling’ is the future.
