ASX:DSE
Dropsuite Ltd
Investment Summary
The fund managers believe that Dropsuite Ltd is demonstrating strong growth despite recent challenges. In their opinion, the company has posted impressive quarterly performance with an annual recurring revenue (ARR) increase of 33% year-on-year and a 9% quarter-on-quarter growth, indicating robust demand for its services. However, they express concern over the rise in revenue churn, particularly in the EMEA region, which they believe necessitates careful monitoring. While the churn rate remains under 5%, an increase from less than 3% is noteworthy and has prompted management to implement strategies to enhance customer relationships and mitigate potential losses. Fund managers are encouraged by Dropsuite's continued positive cash flow and significant cash reserves of approximately $25 million, which could facilitate strategic acquisitions. They acknowledge that the company's focus on growth, even at the expense of short-term operating leverage, aligns well with its long-term objectives. Nevertheless, the disparity in market valuations between listed and unlisted entities is seen as a challenge, with unlisted companies currently commanding higher premiums. Despite these market dynamics, fund managers remain optimistic about Dropsuite’s future prospects, asserting that the current valuation anomalies may not be sustainable and may ultimately benefit the company.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
Commentary From The Manager
Saville Capital
Date
31 Jan 2024
Price
$2.90
Medium
Monthly Report
Commentary
Saville Capital Emerging Companies Fund continues to hold Dropsuite (DSE) due to the company's strong performance in 2Q FY24, with annual recurring revenue (ARR) up 35% on the previous year and 7% growth quarter-on-quarter (constant currency). The growth was partly fueled by the addition of 26 new direct and 231 indirect transacting partners, contributing to its impressive gross margins of around 70%. With positive cash flow and $24.3 million in cash reserves, DSE is well-positioned financially. As the company begins to cycle past the loss of a low-ARPU client starting in 1Q CY24, Saville Capital expects ARR growth to accelerate in the coming months. The combination of strong partner growth and solid financial standing supports Saville Capital's continued confidence in DSE's long-term potential.
Saville Capital
Date
30 Apr 2024
Price
$2.70
Medium
Monthly Report
Commentary
Saville Capital Emerging Companies Fund continues to hold its position in Dropsuite Ltd (DSE) following a strong quarterly performance, highlighted by an ARR of $37.6 million—up 33% year-over-year and 9% quarter-over-quarter—driven by increased ARPU. The company, however, experienced an uptick in revenue churn to less than 5%, influenced by economic pressures in the EMEA region. Despite this, management is proactively addressing churn by enhancing customer service support for indirect partners to emphasize product differentiation. Dropsuite also maintains a positive cash flow while reinvesting most of its gross profit into growth initiatives, indicating a commitment to long-term expansion. With approximately $25 million in cash reserved for strategic acquisitions, the company faces challenges related to the significant valuation disparities in the market. Nevertheless, the Fund remains optimistic about Dropsuite's strong growth trajectory and is closely monitoring churn trends and market conditions as they evolve.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.