Recent stock market arrival could beat quoted rival Bango in the quest for positive earnings
Thursday 19 Apr 2018 Author: Steven Frazer

App store and digital content company Boku (BOKU:AIM) may soon be a profitable business. Stockbroker Peel Hunt forecasts $0.7m of pre-tax profit (approximately £0.49m, the company reports in dollars) for the year to 31 December 2018. That could soar to $8.5m in 2019 if the broker has got its assumptions right.

Analysts believe the company’s value proposition and supplier relationships with key digital content partners could spark a re-rating of the share price to 105p or more. Boku, currently trading at 86.5p, joined the AIM market at 59p in November 2017.

APP STORES AND MOBILE CARRIERS

Boku was established in the US in 2008 to provide smartphone payments for apps, movies, music and other online content. It operates a direct carrier billing (DCB) platform that allows consumers to charge online purchases to their mobile phone bill.

It has key relationships with content providers such as Google, Apple, Facebook, Xbox and Netflix. Mobile networks operators such as Vodafone (VOD), O2, Softbank and T Mobile are also clients.

Digital content spending continues to soar around the globe as consumers increasing shop online using their smartphones. They also want payments to be made as simple as possible.

Boku makes its money by taking a slim cut of the overall value of each transaction, or what the company calls total processed volume (TPV). For example, if you paid £5.99 for a movie on the Google app, £5.99 would count towards TPV. Boku makes about 1.4% on TPV which is booked as its own revenue.

RAPID DIGITAL SPENDING GROWTH

This TPV margin has been under pressure with app store operators and content generators wanting more of the profit pie themselves. For example, Bango (BGO:AIM), which also runs a DCB digital payments platform, has seen 4% to 5% margin hopes erode dramatically in recent years, currently running at around the 1.4% ballpark that Boku earns.

Analysts predict further erosion of TPV margins in the coming few years where they are likely to bottom out at something in the region of 0.8%. However, such is the rapid growth in Boku’s TPV income its profits are still predicted to growth fast.

Peek Hunt estimates Boku’s $1.24bn TPV in 2017 will soar to beyond $5bn by 2020, fuelling pre-tax profit of $8.5m in 2019 and $15.5m in 2020.

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