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Why the Douugh (ASX:DOU) share price is rocketing 15% higher today

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The Douugh Ltd (ASX: DOU) share price is rocketing higher today. This comes after the company signed a non-binding memorandum of understanding (MoU) with Humm Group Limited (ASX: HUM). At the time of writing, the Douugh share price is up 15.38% to 30 cents.

What’s driving the Douugh share price higher?

The Douugh share price is soaring higher today after signing an MoU with Humm (formerly known as Flexigroup).

According to the release, a $600 million joint venture agreement will see the launch of a Douugh branded ‘buy now, pay later’ (BNPL) feature in the United States. The platform is expected to be available some time in the first half of the 2021 financial year.

Available through the Douugh app, the BNPL offering will provide customers an interest-free credit feature, helping them to consolidate credit card debt. It is anticipated that this will drive new customers into the business’ ecosystem.

Douugh advised that it proposes to offer up to $1,000 to eligible customers through its Credit Jar product and virtual MasterCard. The repayment period will be over 6 automatic weekly instalments.

To support the development and launch, Douugh announced it has received commitments from institutional and sophisticated investors for a $12 million placement. In return, Douugh will allot 54.5 million shares to the investors at an issue price of 22 cents per share.

Humm will spend $2.5 million to subscribe to the placement, through its newly formed partnership subsidiary, Humm Ventures.

Of the $12 million received, Douugh will use over $3 million to invest in research and development. Another $7.2 million will be allocated to marketing and growth activities. The remaining amount will be distributed to additional working capital and administration expenses, and the cost of the placement.

The joint venture agreement is based on a number of conditions to be met, which include responsibilities, the term, fees and commencement date. Exact details are yet to be finalised by both parties.

Management commentary

Douugh founder and CEO, Andy Taylor, spoke about the company’s partnership with Humm, saying:

In Humm, we believe we have found a partner who not only invented the BNPL category, but has ambition to further innovate and build the future of consumer credit on the international stage.

Adding to Mr Taylor’s comments, Humm CEO, Ms Rebecca James, said:

Through our proposed joint venture with Douugh, we are taking our first steps into the United States as a company. At the same time, we are demonstrating how Humm Ventures can create innovative and novel ways to take Humm’s world class technology and capabilities to expand its relevance and distribution.

As Australasia’s bigger buy now pay later partners with America’s newest neobank, we are proving that we can take what we have learned locally and apply it on the global stage, disrupting the payments industry and providing better customer experiences across the world.

About the Douugh share price

The Douugh share price has had an extraordinary ride since its initial public offering (IPO) in early October. Listing at just 3 cents a share, investors who picked up Douugh shares would be sitting on gains of over 1000%. Not a bad return for less than two months of holding the neobank’s shares.

Based on the current Douugh share price, the company has a market capitalisation of around $80 million and actively trades with an average of over 15 million shares swapping hands daily.

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Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Mastercard. The Motley Fool Australia has recommended Mastercard. 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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Aaron Teboneras