Shares in software business GetSwift Ltd (ASX: GSW) are down 7% to 39 cents today and down around 90% from their December 2017 highs after the controversial software group provided a trading update today.
For the quarter ending June 30 2018 GetSwift reported receipts from customers of just $241,o00, although it did claim that transactions for the quarter were 1,427,358, almost double the prior corresponding quarter.
However, the feeble revenues resulted in a net operating loss of close to $4 million for the quarter, with the group blaming the rising costs on legal and governance expenses among other things.
GetSwift is currently defending itself from a proposed class action against it by shareholders out-of-pocket over allegations it mislead the market in breaching its continuous disclosure obligations.
Remarkably, the company managed to raise $75 million from investors at an issue price of $4 per share back in December 2017 after a succession of announcements to the market.
These included news over deals with Amazon. Inc. Yum Brands, and Commonwealth Bank of Australia (ASX: CBA), all of which helped its valuation rocket as punters bid the stock up, despite the lack of revenue.
This leaves it in the unusual position of having $96.7 million cash in hand, but a software-as-a-service ‘logistics management product’ that’s bringing in only around $80,000 a month. Embarassingly, GetSwift is now making nearly as much in interest on its cash hoard as it is on its software-as-a-service product.
Given its track record and the lack of revenue, GetSwift remains a stock to avoid, even though the market is now valuing it at less than its tangible cash backing. This is partly because investors feel it may face a significant legal bill over the recent problems.
If you want to invest in the software-as-a-service space I’d suggest focusing on companies actually generating revenues and operating profits. This is not rocket science and one company that comes to mind is Xero Limited (ASX: XRO).
While others like those named in the below report also offer healthy capital growth potential….
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You can find Tom on Twitter @tommyr345
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 Scott Phillips.