The Catapult Group Ltd (ASX: CAT) share price opened 1.7% lower today at 86.5 cents after the sports analytics business posted a mixed quarter ending December 31 2018.
The good news is that total revenue growth remains strong up 32% or 26% on a constant currency basis to $43 million, with its elite wearables business's revenue up 23% on a constant currency basis to $40.3 million.
Catapult also reported that annualised recurring revenue (ARR) now stands at $57.4 million, which represents growth of 25% on the prior corresponding period.
As we can see Catapult's core professional sports and video data analytics business appears to be growing reasonable well, but it's off script push into the "prosumer" or the amateur sportsperson space still has me scratching my head.
For example today it reported core underlying EBITDA for the six-months to December 31 2019 of $3.5 million, although that figure is backing out the significant "prosumer" costs, so doesn't really mean a great deal and goes some way to explaining today's share price falls.
Today the group admitted that "prosumer sales" are not performing to forecasts with it scrapping FY 2019 guidance for prosumer sales volume of 3.5x to 4x FY 2018's effort. In fact over the six months to December 31 2018 Prosumer sales grew 2.1x to 11,400, compared to 14,000 in the whole of FY 2018.
This result is despite the heavy investment in the "prosumer" business, with the group today flagging that it will scale back planned investments in the "prosumer" business by $3 million over the second half.
In other words Catapult looks to be cutting its losses for now and might be coming to the conclusion that the "prosumer" business is a mistake. As stated before, I expect it would be better off just focusing on growing profits at its core professional wearables business.
Outlook
Over the quarter Catapult's cash balance declined $6.5 million, with it having cash on hand of $27.1 million as at December 31 2018.
In my opinion Catapult's ballooning cost profile and investment projects like "prosumer" suggest it's not a business run by management with shareholder returns as a top priority. As such although it has some attractive qualities and looks "cheap" on some valuation metrics such as enterprise value to ARR I'm not a buyer of shares.
In the software-as-a-service space I'd prefer businesses like Pro Medicus Limited (ASX: PME) that stick to the script and have a much better focus on execution and cost control.
