ReadCloud (ASX:RCL) share price slips despite maiden EBITDA profit

The market isn't responding positively to ReadCloud's FY21 earnings out today.

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The ReadCloud Ltd (ASX: RCL) share price is sliding after the company released its earnings for the financial year 2021 (FY21).

Right now, the ReadCloud share price is trading at 29 cents, 3.33% lower than its previous close.

ReadCloud share price slumps despite improved margin

Here's how the provider of digital e-learning resources performed in FY21:

FY21 was a year of ups and downs for ReadCloud.

The company advised that its VET segment saw a 52% increase in gross profit to $2.9 million.

Its full-curriculum segment's revenue dropped 17% to $3.92 million as a result of a $1 million reduction in reseller revenue and the loss of 4 school customers.

ReadCloud said the drop in revenue was partially offset by an increase in eBook sales and new direct full-curriculum customer schools.

The segment recorded $1.18 million of profit.

The ReadCloud platform saw a 21% increase in direct full-curriculum users, of which it now has 57,000. The number of VET-in-school users also increased 56% to 14,000.

The company's platform now has more than 116,000 users and more than 550 school and educational institution customers.

Finally, ReadCloud's published and bookseller expenses dropped to $3.05 million in FY21, down from $3.89 million in FY20.

The company ended the period with $6.3 million of cash and $460,000 in debt.

What happened in FY21 for ReadCloud?

Acquisitions and enhancements drove ReadCloud and its share price in FY21.

The company completed its acquisitions of the College of Sound & Music Production and the Ripponlea Institute in FY21.

It's now the second-largest private operator in the Vocational Education & Training-in-Schools market in Australia by student numbers and the largest by the number of VET qualifications offered.

ReadCloud spent $1.8 million to acquire the Ripponlea Institute, using a mix of cash and scrip. The institute provides VET programs in the language segment to 70 Australian secondary schools and Certificate IV in Training and Assessment.

According to ReadCloud, the College of Sound & Music Production is the market leader in VET courses for the music industry. It provides VET programs to 184 Australian secondary schools. ReadCloud paid $1.45 million for the acquisition, using a combination of cash and ReadCloud shares.

Additionally, ReadCloud worked to enhance its software platform in FY21. The improvements will boost its scalability and maintain its competitive advantage.

Over FY21, the company signed up 22 new schools for full curriculum needs in 2021. To help navigate the challenges, ReadCloud signed up 3 new full-curriculum resellers during FY21.  

As at 30 July 2021, ReadCloud had more than 57,000 direct full-curriculum school customer users, 21% more than it did at the same time the prior year. It also had more than 45,000 reseller full curriculum school customer users, down 20% compared to June 2020.  

What's next for ReadCloud?

Here's what those interested in the ReadCloud share price might want to keep an eye on in FY22:

The company plans to leverage its new acquisitions by taking advantage of new cross-selling opportunities.

85% of ReadCloud's school customers only use one of its VET providers.

It believes schools generally prefer to deal with fewer registered training organisations to simplify the compliance requirements and to only use one software platform.

ReadCloud plans to begin cross-selling courses across its businesses in the future and expects to see the benefits in FY22.

Additionally, ReadCloud will invest in its full curriculum sales channel in FY22.

In response to COVID-19 restrictions, ReadCloud has implemented a new outbound and online video force selling its full-curriculum segment. The new sales strategy has already brought about a pipeline the company's working on for the 2022 school selling season.

Finally, ReadCloud plans to grow its reseller sales channels. It's in discussions with a number of school booksellers that might be interested in becoming a ReadCloud reseller.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended ReadCloud Limited. The Motley Fool Australia has recommended ReadCloud Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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