Shares in Mobile Embrace Ltd (ASX: MBE), a small-cap provider of mobile communication products and services, leapt 13% today, after the company announced a significant upgrade to its forecasts for Financial Year (FY) 2016.

Here’s what you need to know:

  • Revenue guidance of greater than $60 million, up 82% from $33 million in FY2015
  • Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) guidance of greater than $9 million, up 76% from $5.1 million in FY2015
  • The company has already achieved $44 million revenue and $6.7 million in EBITDA as of the end of the third quarter 2016
  • Carrier billing services are growing at 10% per month and accelerating
  • Average revenue per user is rising, cost of attracting customers is falling
  • Customer lifetime value is growing strongly

Mobile Embrace shows all the classic signs of a business that is successfully scaling up, and reminds me a little of XERO FPO NZ (ASX: XRO) in this sense, although Mobile Embrace is profitable. With a relatively fixed cost base, as the cost of acquiring customers falls, more sales drip through into cash flow and profits for Mobile Embrace shareholders. Growing average revenue per user and customer lifetime values is the icing on the cake.

Additional deals like the recent StarHub partnership in Singapore provide plenty of growth opportunities, and it’s interesting to note that management states that sales at its Direct Carrier Business are growing at 10% month on month and accelerating.

Mobile Embrace’s price suggests that the market is aware of its potential, although looking over the next five years or so, the company could justify today’s prices. One key issue to watch will be Mobile Embrace’s funding situation, as the $5 million in the bank in February won’t stretch far if management keeps making acquisitions. Cash flows are strong however, and should be able to support an increase in debt.

Mobile Embrace could be worth a closer look by investors, although the head of The Motley Fool’s Share Advisor service, Scott Phillips, has previously raised some questions over the company’s 2015 financials, here. Mobile Embrace subsequently confirmed this was not a material error and had no impact on the company’s financial performance.

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Motley Fool contributor Sean O'Neill owns shares of Xero. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.