Catapult Group International Ltd sports a mixed performance

This morning sports analytics business Catapult Group International Ltd (ASX: CAT) reported a net loss of $17.3 million on revenue of $76.3 million for the financial year ending June 30, 2018. The loss widened 27.8% on the prior year, while revenue lifted 26.3%.

The group reported a positive EBITDA of $0.95 million after excluding costs related to acquisitions, capital raisings, litigation, share-based payments and severance costs, with statutory EBITDA coming in at a loss of $1.95 million.

As at June 30 2018 Catapult had $53.4 million in annual recurring revenue (ARR), with strong 29% growth across its core elite wearable segment. The elite wearables segment is the core of the original Catapult business and includes hundreds of  famous professional sports teams with clients globally handing it an average revenue per user (ARPU) of $109 per unit. This ARPU was flat on the prior year, which suggests the business may be feeling some competitive pressure.

Catapult has also moved into the sports video analytics space recently via a major acquisition and reported that its elite video business grew revenue 6% over the prior year, with a much stronger second half contributing revenue growth of 17% over the prior corresponding half. In total ARR for this unit is $28.4 million.

Catapult has also raised capital several times over the past couple of years some of which has been earmarked to fund its push into what it describes as the “prosumer” or amateur sports person space, where it reports it generated $3.4 million in revenue over the year with 14,000 devices sold.

It estimates that there are 20 million prosumer (amateur) soccer players alone that it can target. Prosumer is certainly an exciting story to sell to investors, but whether it delivers a return on capital invested is yet to be seen.

The main downside to the last year has been the significant cost growth, with travel, office and total staff wage costs not far off ballooning as the group reports it is investing in the necessary headcount and marketing to win market share on a global scale.

The stock has lost nearly half its value over the past year in response to the cost growth, although Catapult today reported that in the second half revenue growth accelerated, while cost growth slowed.

Still the business does not expect to “generate positive cash flow” until FY 2021 which is three years away, with the group due to provide “quantitive” FY 2019 guidance at tis AGM later in the year.

The balance sheet is strong with $31.7 million cash in hand.

Foolish takeaway

For the believers the stock is not expensive as a software-as–a-service (Saa) and recurring revenue type business growing steadily on less than 3x trailing sales. In fact this is a steal compared to how other unprofitable SaaS businesses such as Xero Limited (ASX: XRO) trade on more than 11x trailing sales.

Moreover, there would appear to be plenty of room for better cost management at Catapult, which could deliver upside if combined with top line growth.

I sold my Catapult scrip for around $2 back in August 2017 being sceptical about the push into the prosumer space, cost and revenue growth rates. On conventional SaaS valuation metrics the stock looks cheap now, but I’m not a buyer based on the recent track record of the business and my scepticism as to the return on investment for the “prosumer” investment.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended Catapult Group International Ltd. 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.

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