Introducing Skyfii (ASX:SKF)

Skyfii (ASX:SKF) is a company that initially used free wifi offerings to harvest data about visitors to sell analytics to owners of venues such as stadiums or shopping malls. The problem with this kind of offering is that it doesn’t really enable clients, but simply gives them a bunch of data. (For what it’s worth, I’d worry more about sinister personal monitoring using facial recognition and social media, than this kind of data harvesting, from an ethical perspective.) Today, the company offers a much more practical service which can link the wifi-harvested customer profiles with actual spending, as well as foot traffic or attendance at certain locations.

Importantly, they have also built an IO platform which is software that can generate automatic reports that give obviously useful analytics, such as the number of visitors to a certain location that convert to buying a certain product, what demographic is dominating at certain times and even what products they are favouring. This is important because it means that Skyfii instantly enables someone in an existing role (such as a manager tasked with hitting budget) to achieve that goal, rather than requiring the venue owner to hire a data analyst separately.

For obvious reasons, then, over time as long as large venues remain part of society, the Skyfii business can naturally adapt. Whether you are a venue hosting a rock band, melodic deep techno, or a Dota 2 qualifier (an e-sport), you can still benefit from analytics to understand your crowd and how to profit best from them. As long as these kinds of systems become more widespread in venues, there should be plenty of demand pull for Skyfii.

Based on its last quarter it had annualised recurring revenue of about $6 million, but that would be $7.5 million if you include recurring revenues from the recent acquisition of Beonic, which operates a similar business. On a cash flow basis, the company was close to breakeven in FY 2019, and the company has a related party loan (costing 8%) for up to $2 million, with $1.5 million undrawn. Against this, the company has a market capitalisation of $42 million, or about 5.6 times ARR.

Only about 15% – 20% of customers have the Engage module (where they message visitors with marketing) and less than 10% have people counting, so there is room to improve per-customer revenue. In particular, the CEO says there is plenty of up-sell opportunity with IO labs. In the short term, the company intends to increase R&D and marketing, so it seems unlikely that the bottom line will look good in the current year and it’s certainly possible the company could raise money again.

But as long as revenue continues to grow (and costs don’t blow out), what we seem to have is a company that can afford to self-fund its own growth while it builds a largely recurring base of high margin revenue. I think the chances that this could be a strong performer over the next three to five years, especially if organic growth speeds up a little bit. Whether or not Skyfii succeeds from here, or not, I’d argue that the asymmetric return profile is obviously attractive at around the current price of 15 cents per share. I first disclosed my interest in Skyfii some time ago, and I was pleased that a patient order was triggered recently. While this is in no way a recommendation, I personally hold it because I think that in the next few years it’s likely a strong case could be made that Skyfii is worth over 30 cents. On the downside, as long as it maintains some cost discipline (which I see as the biggest risk), I think it’s unlikely that the stock is worth much less than 10 cents per share.

Please note this was originally published in October 2019 and is now out of date. Click here for our latest articles on Skyfii.