Why ASX Tech stocks have been rallying and what is this small stock Limeade all about

Summary

• In the wake of COVID-19 pandemic, technology sector took a quantum leap, with an increase in adoption of new technologies, and advancing digitisation theme, precisely, in tech-enabled segments such as connectivity, supply chain, retail, data centres, and retail.
• ASX listed Company, Limeade share price zoomed up by 5.442% on 28 August 2020. The soared share price was buoyed by the unveiling of its bolstered 1H FY20 results ended 30 June 2020 on the same day.
• Limeade plans to continue its focus on implanting long-term growth plans consisting of expansion into key markets; acquisition of new customer base; up sale to the existing customers; amplification of its platform offering, and growth acceleration via acquisitions.
• The Company anticipates inflation in its pipeline execution via inking of new enterprise contract in 2H FY20.
• Furthermore, Limeade projects FY20 revenue of AU$56.1 million; EBITDA loss in the range of AU$5.5 - AU$6.5 million, and net loss after tax in the range AU$47.5 - AU$51 million.

Amid COVID-19 crisis, technology sector has been experiencing boosted demand for cloud computing, cybersecurity, virtual meeting applications, e-learning, digital payments and many more.

In the current times, digitisation theme is accelerating, and numerous tech companies have been resilient to weather the coronavirus storm.

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Furthermore, tech-enabled entities are not only leveraging a swathe of opportunities to thrive and flourish in the competitive market, but they are also pushing forward several businesses across different industry verticals and changing their business model; offering new revenue flow, as well as providing value-added opportunities.

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Numerous ASX listed tech stocks have been outperforming the benchmark index.

Notably, Australia’s S&P ASX All Technology Index (ASX:XTX) , which was launched in Feb 2020 to promote technology sector players, was trading at 2,514 points, increasing by 1.65% (at AEST 1:53 PM), on 31 August 2020. Also, the benchmark S&P/ASX200 index was trading at 6079, rising by 0.10% (at AEST 1:56 PM).

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On that note, let us cast an eye over ASX listed Company, Limeade, Inc. (ASX:LME), a leading employee experience software company that aids in creating great spaces to work. Its platform is noted to amalgamate employee well-being, engagement as well as inclusion solutions with boosted communications capabilities.

Source: Company’s Presentation, dated 28 August 2020

Limeade share price witnessed an uptick of 5.442% and settled the day’s trade at AU$, as on 28 August 2020.

However, on 31 August, Limeade share price decreased by 1.29% (at AEST 1:54 PM) and was trading at AU$1.53.

On 28 August, Limeade published results for the half-year ended 30 June 2020 (1H FY20), as discussed in the article.

Let us quickly acquaint ourselves with the latest news that drove an awe-inspiring run for Limeade share price on ASX.

Impressive business performance during 1H FY20

For 1H FY20 period ended 30 June, Limeade highlighted total and subscription revenues swelling by AU$28.0 million and AU$27.4 million, respectively.

This upsurge of 24% (in total revenues) and 26% (in subscription revenues) on last year, demonstrated revenue from its new clients and additional sales to its existing customer base.

Moreover, LME’s recurring revenue constituted 98% of the total revenue noted in 1H FY20, up 1% (pcp).

It is worth mentioning that in spite of the effect of COVID-19 pandemic, worldwide, Limeade did not witness a surge in customer terminations or non-renewals over internal forecasts.

Source: Company’s Presentation, dated 28 August 2020

Additionally, LME’s Net Revenue Retention (NRR) was noted at 98% on 30 June 2020, indicating a plunge of 4% (pcp) primarily due to diminished upsell and diversification opportunities as a result of the pandemic.

Furthermore, gross margins stood at 77.1%, indicating a rise of 1% on pcp. This surge was driven by improvements in attributes like customer mix, operational efficiencies, and higher value contracts.

Limeade’s pro forma EBITDA loss experienced a considerable improvement of 58% on pcp and was recorded at AU$0.7 million. The upgradation was ascribed to enlarged revenue witnessed in 1H FY20 period, along with operational and marketing efficiencies via lower sales and marketing costs related to a drop in travel, face-to-face marketing events and a slow rate of new hires.

Limeade also divulged its bolstered financial position with cash of AU$28.4 million and no debt, as on 30 June 2020.

Notably, the boosted balance sheet echoed that Limeade is well-positioned to fund potential future growth initiatives.

Pleasingly, Limeade’s total pipeline enlarged by 61% (y-o-y) and stood at AU$219 million, as on 30 June 2020.

Source: Company’s Presentation, dated 28 August 2020

Outlook for FY20

Limeade is believed to lay emphasis on continuously executing its long-term growth plan comprising of acquisition of new clients; diversification into key markets; up selling to existing customer base; amplifying its platform offering and accelerate growth via acquisitions.

Furthermore, the Company projects a substantial increment in pipeline execution through inking of its new enterprise contract in 2H FY20, corresponding with the historical trends’ experiential in the business.

The Company re-affirmed its earnings guidance for FY20 with the anticipation of the following-

• Revenue of AU$56.1 million
• EBITDA loss between AU$5.5 - AU$6.5 million; and
• NPAT to strike in the range of AU$7 - AU$8 million.