CloudBuy PLC (), the developer of online marketplaces, learnt some hard lessons in 2016.
Mainly it has got a better handle on what deals are worth chasing, and which deals should get the barge pole treatment.
The focus now is on projects that have a larger upfront fee, as this mitigates the risk for cloudBuy and provides a larger incentive for the customer to continue through to the transaction revenue phase.
WATCH: “We’ve learned a lot of hard lessons”, says CloudBuy boss …
This strategy proved effective in 2016 with four new customer contracts won, all with large customers providing ongoing software-as-a-service (SaaS) revenue.
Two of the contracts were for marketplaces that include the opportunity for transaction-based revenue and are with customers who have credible investment plans to drive the success of their marketplaces, said cloudBuy’s executive chairman, Ronald Duncan.
Signs of genuine progress
Unfortunately, it was a bit of a case of two steps forward, two steps back for cloudBuy on the revenue front, with two major contracts ending during the year.
Revenue was in line with market expectations at £1.71mln, down 2% on 2015’s £1.75mln.
Despite strong progress on the cost-cutting front – admin expenses tumbled to £4.78mln from £6.88mln in 2015 – the company recorded a loss before tax of £4.27mln, compared to a loss of £6.06mln the year before.
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There were signs of genuine progress in the first half of 2017. Increased revenues and prudent cost cutting helped to narrow its losses.
CloudBuy’s flagship PHBChoices marketplace continues to be the key revenue driver and is making “positive progress” with a quarter of clinical commissioning groups (CCGs) – essentially local NHS healthcare commissioning body – either contracted or in advanced discussions.
Administrative expenses were slashed by more than a third to £1.73mln (H1 2016: £2.64mln), while the charge-related to share-based payments also came down to £248,000 (H1 2016: £348,000).
That, coupled with a 4% rise in revenues to £819,000 (H1 2016: £785,000), helped the half-year pre-tax loss narrow significantly to £1.48mln from £2.4mln a year earlier.
What the company does
cloudBuy is a business-to-business software company that provides e-commerce web sites, online marketplaces and cloud-based sales and purchasing solutions.
You can think of it, if you like, as a creator of specialised versions of the well-known and eBay sites. In essence, it builds electronic marketplaces that connect buyers & sellers.
Sellers can list their company and reach new customers for their products and services, while buyers can shop around to source new products and services.
The firm is best known for providing e-commerce solutions, but the company’s cloud-based applications are also used for company spend analysis, content management and big data.
Looking at the company’s web site, it is apparent that it has a strong presence in the local government and healthcare markets – both sectors that have large budgets and which do a lot of procurement.
Among the case studies listed are Devon County Council, Hampshire Hospitals, Higher Education Funding Council for England and East Renfrewshire County Council, all of which speaks of a company that is a trusted partner.
The flagship project in the UK is the PHBChoices marketplace, which enables patients, or their carers, to purchase goods and services from suppliers that support their care plan agreed with their Clinical Commissioning Group (CCG).
PHBChoices “remains our main focus for growth, supplemented by contracts already won around the world and a limited number of new opportunities including in the Middle East,” said executive chairman, Ronald Duncan, in the company’s 2017 interim results statement.
“The expected progress on these key contracts and cost reduction measures already taken will result in a significantly lower loss for 2017 compared to 2016.”
Duncan added that revenues and operating profits (excluding share-based payments), will be broadly in-line with market expectations this year.
Opportunity for overseas growth
The customer list also gives the impression that the company is UK-focused, when in fact it has recently been making a big push to establish itself in the Asia-Pacific region, where the market opportunity is huge.
Late last year it signed a deal with Asian bank United Overseas Bank (UOB) that could signal future progress on the road to profitability.
The contract was for five years, and will see cloudBuy’s technology powering a new online marketplace for UOB customers, providing a secure but user-friendly environment for business-to-business (B2B) transactions.
Lyn Duncan, cloudBuy’s chief executive officer, said: “The fact that cloudBuy solutions have PCI DSS Level 1 payment security accreditation, the highest level used in the payments industry, is really important to provide a trustworthy environment for buyers and sellers to come together. This is a model that will be attractive to other banks globally.”
Meanwhile, the CII marketplace in India has continued to develop with circa 40,000 products featured and available for purchase. To support the ongoing roll out of the marketplace in India, has partnered with cloudBuy to integrate its two new apps into the cloudBuy product suite, allowing suppliers in rural areas to manage content on the CII marketplace and their own web sites, with low broadband connectivity from their mobile phones.
The company also has a foothold in North America, where it is working on a project with the York District School Board in Ontario.
Like almost all software companies these days, the name of the game is achieving recurring revenue.
Chief financial officer David Gibbon is on record as saying the focus in the second half of 2016 was on generating revenue from existing projects on a recurring basis and on closing new deals that will have a combination of project and recurring revenue.
Although currently loss-making, USA investor Roberto Sella, a former managing director at , and his affiliates are obviously believers in the company.
Sella, the managing member of LL Funds LLC, which has US$1.5bn under management, subscribed for 5mln cloudBuy shares in 2015 at 20p each, spending a total of £1mln.
He is now the beneficial owner of 10.675 mln shares, or 8.3% of the share capital.
The key element that will determine whether Sella sees a profit on his investment is whether cloudBuy can get the top line heading north.
The decision to withdraw from certain markets has lessened the need for sales and marketing resources, and has thus reduced the cost base, but cost-cutting can only get you so far; cloudBuy needs contract wins.
“The medium to long term outlook is positive based on the lower cost and more effective operating model, “executive chairman Ronald Duncan believes.