Full-year results for 2017 revealed the company is still growing fast, with the end user spend (EUS) doubling during the course of the year, but investors took the opportunity to bank some profits after the recent good run by the shares, which are up about 75% over the last year.
EUS rose to £271.4mln in 2017 from £132.3mln in 2016 while revenue increased 62% to £4.2mln from £2.6mln, a shade ahead of the consensus forecast of £4.1mln.
Cenkos analyst Ian McInally had previously estimated gross EUS would rise to £258.9mln for 2017 and to £498mln by 2018, at which point, he predicted the group would be generating £8.2mln of gross profit with positive earnings of £3mln for the year.
The top line keeps on growing fast while operational costs remain stable
The key to understanding the investment case of Bango is the relationship between the growth in EUS – which was running at an annualised rate of £465mln at the end of February 2018 – and the increase in operating expenditure.
While EUS was doubling, operational costs were down slightly at £2.3mln from £2.4mln the year before, demonstrating the high scalability of the platform.
The Bango platform will comfortably handle at least a doubling of EUS at current stable cost levels, with a strong pipeline of new relationships and upgrade opportunities with existing partners, the company told investors.
Furthermore, the platform was tested to a capacity of more than £5bn worth of transactions a year in mid-2017 and not found wanting.
As such, the company is set to see a large proportion of any increase in revenue drop through to the bottom line, as it accelerates towards profitability.
In 2017, the adjusted loss before interest, tax, depreciation and amortisation (Lbitda) narrowed to £1.6mln in 2017 from £2.8mln the previous year, while it is worth noting that Bango became Ebitda positive on a run-rate basis in November 2017.
The group, which enables payments for apps and games including Pokemon GO, has been steadily adding new technologies to its offering, including direct carrier billing for physical goods (the Amazon Prime deal in Japan), resale and bundling for Amazon Prime in Indian and beyond, plus new payment methods such as digital wallets.
What does Bango do?
In its own words, Bango makes it easier for customers like you and me to buy digital content like apps, games and music on our phones and tablets. Once users are ready to complete their app store purchases, they just click once and they’ve paid.
The payment is charged to the user’s mobile phone bill, meaning that there is no need to enter card details or any other personal information.
Essentially, you can make app store purchases whenever, wherever and in one tap.
The firm says that its technology reaches more people and delivers a higher conversion rate than any other method.
Within a split second of pressing the buy button, Bango is able to work out the user’s identity; which operator the customer is paying through; if funds are available to make the purchase; as well as anti-fraud information to help secure the payment.
How does Bango make money?
Bango has processed hundreds of millions of digital content payments for the likes of Amazon, Microsoft, Samsung and Google.
For each of these purchases made using Bango’s payment platform, the firm takes a small percentage.
It doesn’t stop there.
Through all these transactions, Bango collects data by the masses, which it uses to generate unique insights into customers’ buying habits.
The company can then use this information to offer optimisation recommendations to its partners about how they could improve the user experience and, more importantly, how they could increase their conversion rate.
The share price appreciation is keeping pace with growth in end user spend
Bango shares have been stock market stars over the last two years with the main catalysts being that growth in end user spend and, perhaps more significantly, the announcement of a new payment method for customers of global online retail behemoth Amazon.
Amazon customers with a KDDI or NTT DOCOMO mobile phone account can now pay for physical goods from Amazon.jp by simply adding the cost of the goods to their mobile phone bill.
The system saves all the faff of adding a credit or debit card to an online account and remembering the three-digit security code and so on.
"Internet usage in Japan is mobile-first, with billions of dollars in online purchases charged to Japanese consumers' phone bills" said Ray Anderson, Bango’s chief executive officer.
"The Bango platform ensures global retailers can offer these customers the trust and transparency they want from a payment method, and can deliver this at scale," he added.
The Japanese e-commerce market is estimated at US$100bn annually and Amazon is the market leader, so the deal should be meaningful for Bango, and there are plenty of other opportunities in the pipeline.
Bango said it is deepening customer relationships and opening new revenues streams by providing further ways to make money from data harvested by mobile network operators.
"The Bango Platform enables leading merchants across the world to grow their sales faster by opening-up payments to more users and by using the unique data that only Bango can provide,” said company boss, Ray Anderson.
“Bango added new customers, new payment routes and continual enhancements to the Bango Platform, developing and investing in new technology, providing more opportunities for Bango customers to expand and diversify their businesses. Growth with existing routes and substantial opportunities in the sales pipeline make Bango confident in continued substantial EUS and revenue growth in the coming year," he added.