ASX:8CO
8Common Ltd
Investment Summary
The fund managers believe that 8Common Ltd (8CO) presents a unique investment scenario. Despite reporting a cashflow breakeven quarter, the company’s revenue fell by 21% year-over-year, primarily due to a lack of implementation and support revenue. They acknowledge that while recurring and transactional revenue grew by 9%, the slow onboarding process has hindered growth. The investment thesis, rooted in 8CO's contract for the Federal Government, worth over $5m annually, remains intact with an increase in users from 20k to 47k, and a further 15k currently onboarding. However, the cumbersome government processes have stymied scalability. The fund managers emphasize the importance of patience, suggesting that the market capitalization of $5m does not reflect the potential $8-10m in steady revenue once fully deployed. They see the strategic value of 8CO's position within the government could attract a potential acquirer.
Commentary From The Managers
Mereweather Capital
31 Jan 2025
$0.03
- Mereweather Capital notes a disappointing quarterly result from 8Common (8CO) despite a cashflow breakeven status.
- 8CO's revenue fell 21% year-on-year, despite 9% growth in recurring and transactional revenue.
- The lack of implementation and support revenue contributed to weaker than expected results.
- Mereweather Capital acknowledges challenges associated with "thesis creep", highlighting the difficulty in pinpointing when a thesis is broken.
- The investment thesis was based on a $5m+ per year government contract awarded in 2021.
- Current user base has grown from 20k Federal Government users to 47k, with 15k more onboarding and 35k in initial stages.
- The slow onboarding process, affected by elections and bureaucracy, has hindered scalability.
- Mereweather Capital continues to hold the stock as the original thesis remains generally intact.
- The current market capitalisation of $5m does not reflect the potential $8-10m in sticky government software revenue once fully deployed.
- As more Federal Government customers onboard, Mereweather Capital believes the strategic value will increase, potentially attracting acquirers.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.