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Is hipages the next technology unicorn?

Investing 101

The last few months have been an IPO bonanza for investors after a flurry of small-cap tech companies listed on the ASX at a most opportune time. A recovery rally, together with a COVID-19 inspired move to digital, saw both the tech and healthcare sectors boom. Simple logic would tell you, that listing during a pandemic is financial suicide. Markets hate volatility, fear, and uncertainty. And so, most IPOs that postponed or pulled their listing in 1H2020 only to return to the market in the second half. COVID-19 forced employees to work from home, triggering an accelerated digital transformation of all industries. Things that were expected to take place in three to five years are happening right now. A good example of this is e-commerce and a handful of Buy Now Pay Later (BNPL) stocks that have done remarkably well.

  • In a similar fashion, Hipages, which is an Australian software services platform, has opted for the ASX listing route. Think something along the lines of Airtasker, but specialising in qualified and registered tradespeople, and you’ve got a good description of the company. Hipages is not a new company. Founded in 2004 by David Vitek and Roby Sharon-Zipser, the company started off in a garage, as many do, offering trade directory services, connecting ‘tradies’ with customers. Fast-forward to today and “hipages is the leading online platform in the tradie category by jobs posted in Australia with approximately 1.4 million jobs posted in FY2020, representing a job being posted approximately every 23 seconds on average.” The company has grown exponentially and gained valuable experience having owned, divested and sold a number of service related businesses such as Natural Therapy Pages, subsidiaries UK Pages Pty Ltd, Natural Therapy Pages Limited (UK registered company), NZ Pages Pty Ltd and Natural Therapy Pages Limited. The company also discontinued Pet Pages Pty Ltd an online marketplace for pet industry service providers and retailers.

    Hipages is a well-established goliath with a few heavy-hitting backers and a colourful history. According to the company prospectus, in 2014, Right Click Capital, Ellerston Capital, and Australian Ethical Investment have invested in hipages together with News Corporation who invested in hipages in December 2015, acquiring a 30% stake. To date, Hipages has raised over $50 million in funding. According to the prospectus, the Rupert-Murdoch controlled stake would be around 25.7% following the dilution of shares, valuing the company at around a $318.5 million market capitalisation.

    Hipages is now looking to raise $100 million from its ASX listing. Here are the details:

    • Goldman Sachs is the lead manager
    • The offer to retail and institutional investors is expected to raise total gross proceeds of $100.4 million based on a price of $2.45 per fully paid ordinary share
    • This values the Company at a total enterprise value of $286.8 million with an indicative market capitalisation of $318.5 million
    • News Corporation will remain the biggest shareholder with about a 25.4%
    • That’s a size similar to Ardent Leisure (ASX:AAD) or OZ Forex (ASX:OFX)
    • It is expected that trading of the shares will commence on or about 16
    • What are the hurdles?

    The company says the offer enables it “to broaden its shareholder base and provide a liquid market for its existing shareholders. Further, it provides funding and financial flexibility to support its strategy and increase investment in its people, technology, brand and growth opportunities.” The stock-standard IPO for growth, M&A and paying down debt. There are a few ‘hurdles’ that investors might notice in the prospectus such as:

    • The company has not posted a Net Profit After Tax (NPAT) in the black, as yet. For FY2019, NPAT of -$13.629m, FY2020 of -$4.157m and has forecast a NPAT of -$1.751m in FY2021 and -$9.170m in FY2022.
    • Hipages has significant debt on its balance sheet. But it expects to repay its borrowings using the proceeds of the Offer and as a result expects to have a net cash balance of $31.7 million following the Offer

    Having spoken with a few tradies using Hipages, the common complaint was that its charged A customer receives three quotes and selects the best quote. The problem with this system is that it does not guarantee the tradie work, even though the tradie pays for the lead. At the end of the month, a tradie could receive a sizeable invoice having completed no work. To the company’s credit, hipages have changed their business model to a subscription model. According to the prospectus, “as at 30 June 2020, 77% of tradies were on a subscription package. In FY2020, the average monthly subscription revenue was $126 per month on 6 to 12 month contracts, which are paid monthly in advance. Bundled into each subscription package is a monthly lead credit allowance that tradies can use to claim job leads. The value of the lead credit allowance depends on the package tier selected.” This puts the business model into the same effect as its competitor ServiceSeeking.com.au which allows. Airtasker retains a flat 15% of the job’s value as a service but the platform is known for its inexperienced tradespeople. The other platform that has the potential to outmuscle Hipages is Facebook. Theoretically, it could successfully take on the home improvement market, should it want to, by creating an instant marketplace of tradespeople and customers via its huge user base.

    All in all, Hipages is gearing up to be one of the biggest tech platform IPOs this year. Despite posting consecutive negative years of Net Profit After Tax NPAT, the company is cash flow positive and will have paid off any outstanding debt. The company has also changed its business model and has a high recurring revenue base, with recurring revenue accounting for 90% of total revenue in FY2020. Hipages isn’t however for the faint hearted. Investors should be willing to take on the added risk usually associated with a fast-growing tech company that go public. Of course, all in the hope that one day, hipages will become a tech unicorn worth many multiples higher. Only time will tell.

    Disclosure – The author, Ishan Dan, was the founder of a tech startup Mr.Tradie, which has since deregistered a few years ago.

    Ishan Dan is a finance journalist for Inside Network. He has written for well known finance publications such as Marcus Today, Unconventional Wisdom, MoneyandLife and The Bull. He has over 15 years’ experience in the wealth management, stockbroking, funds management, investment platforms and newsletter writing space. He is an experienced stockbroker, newsletter writer and business development manager. Considered an ‘All Rounder’ due to his varied experience, it has given him sound expertise across the entire spectrum of finance and investing, with specific expertise in portfolio construction, direct shares and managed fund investing.

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