Why the LiveHire Ltd share price has lost 58% over the past year

Is the LiveHire Ltd (ASX:LVH) share price overvalued?

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The LiveHire Ltd (ASX: LVH) share price is down from a $1.28 this time last year to 53 cents this morning, with the online recruitment platform provider handing in its financial results for the quarter ending December 31 2018 this morning.

For the quarter LiveHire reports it grew annualised repeat revenue (ARR) 25% to $2.05 million, with average recurring revenue per client (ARRPC) up 15% to $32,007.

A back of the envelope calculation suggests LiveHire currently has around 62 clients and it reported that it added a net 5 clients for the quarter when accounting for churn (lost clients) which it blamed on smaller clients leaving as it focuses on winning larger clients worth more to the business.

The group offers enterprise users including DuluxGroup Limited (ASX: DLX) oOhMedia Limited (ASX: OML) and I believe Xero Limited (ASX: XRO) an online (cloud-based) platform that lets existing and potential employees leave their digital footprints to help human resources teams' improve recruitment processes.

It's in a competitive space though with cloud-based recruitment, human resources and talent management tech platforms springing up everywhere at the moment, including the likes of U.S. giant Workday and even the ASX's own Elmo Software Ltd (ASX: ELO).

Livehire claims its platform and talent community or eco-system provides it an advantage over rivals in different spaces, but the declining share price over the past year reflects the fact that top-line growth has not been as strong as expected.

For the quarter revenue will come in at just $924,000 versus an operating cash outflow of $2.78 million, with the group having no debt and $25 million cash on hand.

However, it seems its chief challenge is revenue growth, with even the ARR of $2.05 million for the quarter hardly an inspiring amount given the group is supposed to be a hot tech start-up.

The low ARRPC also suggests the group is not charging much for its product, with it describing its ARPCC as being related to its building a "low acquisition, rapidly deployable solution for infinite scale". Going for market share with competitive pricing makes sense, but if a product cost is rather low and subscriber growth is still not flying along, I'd be inclined to ask why this may be.

According to its most recent Appendix 3B filing with the ASX it has 266.6 million shares on issue (with another 52 million shares subject to voluntary escrow) so if we're generous and just use the number of shares currently on issue in calculating its market value we arrive at a figure of $142 million based on a 53 cents per share price.

This is around 36x annualised trailing revenues, so we can see the stock looks on a high valuation based on some simple valuation metrics even adjusting for cash on the balance sheet.

Of course it's coming off a small base, but it'll likely have to invest more to grow its sales and keep its technology best-in-class, with the market still seemingly pricing in success ahead for the business.

Motley Fool contributor Tom Richardson owns shares of Xero. The Motley Fool Australia owns shares of Xero. The Motley Fool Australia has recommended oOh!Media 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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