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Serko share price slumps after reporting FY20 loss

The Serko Ltd (ASX: SKO) share price is tumbling this morning after the ASX small-cap reported its full-year results for the year ending 31 March 2020.

At the time of writing, Serko shares have fallen 3.96% to $2.91. This drop takes the company’s year-to-date share price loss to around 40%.

About Serko

Serko is an Auckland-based online travel and expense management technology provider. The company’s core software, Zeno, addresses two main functions: corporate travel and expense management.

Zeno Travel is an online travel platform that delivers AI-powered end-to-end travel itineraries, cost control and travel policy compliance to corporate customers.

Meanwhile, Zeno Expense provides finance teams with intelligent technology to automate and streamline the expense administration function, identify out-of-policy expense claims and prevent fraud.

What the numbers say

Starting at the top line, total operating revenue came in at NZ$25.9 million. While this result represented 11% growth over the prior corresponding period (pcp), it was substantially lower than Serko’s initial guidance range of 20% to 40%.

In light of COVID-19, Serko revised its revenue expectations in late February and then withdrew guidance completely in mid-March.

Turning to expenses, operating costs increased 59% to NZ$37.1 million. This reflected a full-year of InterplX operating costs, an expense management software provider Serko acquired in late 2018, and the scale-up of the company’s international presence.

This increase in operating costs led to Serko reporting a full-year net loss after tax of NZ$9.4 million, compared to an FY19 profit of NZ$1.6 million.

Serko capitalised NZ$11 million of development costs in FY20 compared to NZ$6.7 million in FY19. Total research and development amounted to NZ$13.6 million, representing 53% of net operating income compared to 39% in the pcp.

Following the company’s NZ$45 million capital raising in November 2019, Serko remains well-funded with NZ$39.9 million cash on its books as at 31 May 2020. Serko’s net cash burn for the year, including capital development, was NZ$16.5 million.

Moving forward, Serko is targeting a maximum cash burn average of no more than NZ$2 million per month.

Bookings growth

Serko achieved year-on-year bookings growth each month through to February 2020. The Australian and New Zealand markets generated most of Serko’s total bookings, the majority of which were domestic.

With this, the number of corporates transacting through Serko’s platforms continued to grow, increasing by more than 700 compared to the prior year.

In February, a peak of over 24,000 bookings were processed in a single day. This compares to a peak of 21,000 bookings in the same month in the prior year.

However, as detailed in previous trading updates, Serko noted that a gradual decline in bookings became evident in mid-February, which was followed a rapid decline in March.

As a result, total bookings for FY20 were up only 2% over the pcp.

What next?

Looking forward, Serko believes that the Australian and New Zealand domestic and trans-Tasman travel markets, which represents most of its revenue, are poised to recover more quickly than international routes outside of Australasia.

Serko noted that travel volumes gradually started to recover in May in light of the easing of domestic travel restrictions in New Zealand. However, it is yet to see any material increase in domestic travel in Australia.

Despite the uncertain outlook, the company anticipates that its core Australasian markets will be operating at 40% to 70% of their pre-COVID-19 activity levels by March 2021.

Commenting on the results, acting chair Claudia Batten said:

“The first three quarters of the financial year ended 31 March 2020 were characterised by monthly revenue growth and the achievement of a number of key milestones.”

“However, Serko’s performance was impacted in the fourth quarter of the financial year as the Covid-19 pandemic became widespread, significantly affecting booking volumes. This resulted in an adverse impact on the full-year result.”

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Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Serko Ltd. The Motley Fool Australia has recommended Serko 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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