ASX:DSE
Dropsuite Ltd
Investment Summary
The fund managers believe that Dropsuite Ltd (DSE) is demonstrating strong growth, with Annual Recurring Revenue (ARR) increasing significantly from $8.5m in 2020 to $39.9m in 1H FY24. They noted that ARR grew by 35% year-over-year and 7% quarter-over-quarter in recent reports, driven by onboarding new partners and an increase in average revenue per user (ARPU). Despite a rise in revenue churn to <5%, which is concerning, management is actively addressing this through enhanced customer service. The fund managers are optimistic about DSE's positive cash flow and its healthy cash balance of approximately $25m, which is allocated for strategic acquisitions. They recognize the challenge of market valuation disparities that could impact growth prospects. Overall, the fund managers believe that Dropsuite is well-positioned for continued growth in a rapidly expanding market due to its focused B2B solutions.
Commentary From The Managers
Naos Asset Management
30 Sept 2024
$3.40
- Naos Asset Management has maintained a small holding in Dropsuite for several years.
- Dropsuite specializes in B2B backup and archiving solutions for platforms like Office 365 and Google Workspace.
- Annual Recurring Revenue (ARR) has seen substantial organic growth from $8.5m in 2020 to $39.9m at 1H FY24.
- This growth indicates that the product resonates well with its target market.
- Dropsuite's moat is expected to expand as it reinvests capital back into the business.
- CEO Charif El-Ansari and his team have effectively executed their strategy to date.
- Dropsuite is positioned for further growth in a rapidly expanding market.
Saville Capital
30 Apr 2024
$2.70
- Dropsuite (DSE, -11%) has achieved a strong quarter of growth, demonstrating an ARR of $37.6m, reflecting a 33% increase on pcp and 9% QoQ.
- The company added 73k new users during the period, but revenue churn has increased to 5% (up from 3%), particularly in the EMEA region, citing price sensitivity.
- Despite the increase in churn, management has implemented measures to mitigate this trend, including enhancing customer service and strengthening relationships with indirect partners.
- DSE continues to generate positive cash flow while investing most gross profit into growth initiatives.
- The focus remains on continued strong growth, and thus operating leverage is not expected in the near term.
- The company holds a healthy cash balance of $25m, which is set aside for strategic and accretive acquisitions.
- Saville Capital notes a disparity in market valuations between listed and unlisted options, with unlisted entities attracting a significant premium.
- This market anomaly is seen as unsustainable and is a point of frustration in current conditions.
Saville Capital
31 Jan 2024
$2.90
- Dropsuite (DSE, +2%) reported a very strong quarter.
- Annual Recurring Revenue (ARR) increased by +35% year-on-year and +7% quarter-on-quarter (constant currency).
- Onboarding of 26 new direct and 231 indirect transacting partners contributed to this growth.
- The company maintains strong gross margins (~70%) and is generating positive cash flow.
- Dropsuite is well-funded with $24.3 million in cash.
- As Dropsuite will begin to cycle the loss of a material (but low-ARPU) client starting from 1Q CY24, ARR growth rate is expected to accelerate through the remainder of the year.
- Saville Capital continues to hold because of the strong fundamentals and growth outlook for Dropsuite.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.