I’ve written previously about my fascination with the e-invoice and supply chain finance markets, as well as Tungsten/OB10. Now that Tungsten has acquired OB10 and gone public, we have front-row seats at the grand experiment (£225 million to be exact) Tungsten is running in e-invoicing, analytics, and supply chain finance.
In their financial report for the six months ended 10/31/13, I noted several interesting disclosures:
- The OB10 network processed an impressive £109.2 billion in invoices for the year ended December 31, 2013, up 12% from the prior year. This comprised 13.3 million invoices, up 14% over the prior year.
- The OB10 network has 127 large corporate and governmental buyers
- Most important, Tungsten reported that had OB10 been a subsidiary for the entire six month reporting period, OB10 would have reported revenues of £9.5 and an EBITDA loss of £1.1.
My interpretation of these facts is:
- OB10’s revenue amounts about 2 basis points (bps) for every dollar of invoice value. This “gross yield” seems very low. A low yield is acceptable as a strategy to buy growth, but 12-14% growth is not the kind of growth that SaaS investors dream about and invest in!
- Given this yield, if total spend on the OB10 network grows by the same amount every year as it did last year (about $10 billion/yr), OB10 will grow by just £2 million per year.
- Approximately £900 million in invoice volume per client is impressive
The bottom line is that OB10 seems to do a good job penetrating their customers, but they are going to need to:
- add customers at a much faster rate (not easy in enterprise sales),
- increase prices (to increase “yield”),
- and/or dramatically increase yield through cross-selling supply chain finance
to keep up with the lofty expectations of the SaaS-loving public markets.
To that end, OB10 announced it would integrate its e-invoice network with the accounts payable solution of a top 10 US Bank and that Blackstone will provide up to $200 million in equity to underpin a financing vehicle run by Tungsten. OB10 also reported progress on its analytics offering and continuing discussions regarding its acquisition of a bank.
The stock reacted well to the news hitting an all-time high. I’m assuming the market loves the supply chain finance story and the possibility it holds for dramatically increasing yield.