Business software company Reckon Limited (ASX: RKN) today announced a moderate increase to revenue for the half year to 30 June 2016. Here’s a summary of the key numbers:

Reckon Limited 1H15 1H16 % Change
Revenue $54m $57m 5.5%
Profit $9.3m $6.2m -33%
Earnings per share 7.9cps 5.5cps -30%
Dividend 4.25cps 2cps -53%

Source: Reckon Limited half year report

Despite the revenue growth, the company also invested heavily in its cloud transition program resulting in a big decrease in profit compared to the comparable six months. For investors this means a lower interim dividend pay-out which falls to 2 cents per share (cps).

So, where to now for Reckon?

Reckon’s Practice Management business is the company’s largest revenue contributor and was up 4% over the comparable period.

But the real focus for investors is Reckon’s Business unit. This unit includes Reckon One, the company’s cloud accounting product. Revenue declined 2%, but users have grown 18% over the last 12 months to 36,000.

This pales in comparison to the 717,000 subscribers of XERO FPO NZX (ASX: XRO), so can Reckon gain traction going forward?

Reckon is focusing on volume growth via a low-cost strategy and ‘modular’ software design. The aim is to severely undercut competitors with prices starting at $5 per month for a minimal service and charge small additional increments for add-on services.

This pricing compares to XERO FPO NZX (ASX: XRO) starting at $27.50 and Myob Group Ltd (ASX: MYO) from $25 per month, but for more comprehensive products.

The problem is that, as Xero has so effectively demonstrated, many small businesses are simply not that price sensitive, with small companies willing and able to absorb a (tax deductible) price increase for worthy, value adding products.

Is it a buy?

Reckon has a clear focus and a noble strategy. It has done well to shift its business model to subscription revenue and will no doubt continue to win a number of customers on price alone.

I would not anticipate too much growth in the years ahead, but with moderate debt the company could be an appealing cash-cow for some investors once the heavy spending phase has been completed and operating cash flows continue to edge higher.

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Motley Fool contributor Regan Pearson 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.