To analyse the quarterly results from Portuguese revenue assurance vendor WeDo Technologies, you need to dig into the consolidated reports of its parent group, Sonaecom. The Sonaecom FY08 Q3 announcement suggested that WeDo had a very mixed quarter, when compared year-on-year to Q3 FY07. WeDo increased its international footprint, with the Portuguese market generating 40% of its revenues. Sales are up by almost half, year on year. Orders for the year to date are up 33% compared to the first three quarters of FY07, and have already surpassed the total taken for the whole of FY07. These orders are in line with current sales, with 60% coming from outside Portugal. According to the announcement, WeDo represents about 70% of its immediate parent company’s service revenues, which means that WeDo’s Q8 revenues are roughly US$14M. However, EBITDA margin is well down year on year, falling from 15.3% to 8.9%. This was blamed on the integration of WeDo’s acquisitions, Cape and Praesidium. However, acquisitions only take so long to integrate, and the reports made no mention of how much the acquisitions have been responsible for driving revenue growth. There is no doubt these additions to WeDo have played an important part in building revenues, especially those earned outside of Portugal. The open question is whether costs can be further reigned in, or whether growth will keep on being paid for with lower margins.
Mixed Quarterly Results for WeDo
This is a sign that the RA market is small and that Telcos do not spend in RA solutions as RA vendors are thinking.
Can you get your hands in other RA vendors results?
Thanks for your comment – I do what I can! Generally, I will blog about all revenue assurance results that are in the public domain. With specialist vendors that are publicly listed, it is not that difficult to assess their performance. Others, like Subex, have results in the public domain, but analysis of the revenue assurance market is complicated by their diversification into other areas. Businesses like WeDo, which are subsids of groups, may offer only limited information through group reporting, but with a little educated guesswork it is possible to perform some rudimentary analysis. However, there are various ‘big players’ amongst the RA solution providers – like cVidya – that are immune to any kind of inspection. These vendors have no public ownership and still rely on venture cap funding, as if this was some new market with good potential for growth. My guess is that the truth is these companies are depressing margins in the market even further, by selling at zero or negative margin in order to gain share and broaden their customer base. Whatever they tell their VC backers is a mystery to me, but I wonder if a lot of it is make-believe. Further growth with established products is very limited, as most telcos have at least partial solutions in place. This means virgin installations now only tend to be made in a decreasing number of developing countries. The real potential is in securing consolidated procurement deals with the big international groups, but as telcos shift from growth to eeking out the pennies, that means the margins on these big group deals will also be squeezed. After all, groups like Vodafone should be questioning why it is expected to pay 30 times in order to have the same software running in 30 operations. The irony here is that some RA vendors love to talk about how telcos are shifting from a growth model to one where they eek out every penny from increased efficiencies and savings, but they dislike mentioning another, more obvious way for the telcos to boost the bottom line: by getting tougher when negotiating procurement deals with their suppliers. This underpins the observed trend for the RA vendors to diversify their product lines, though in some cases this just means actually developing the products they have said they offered all along ;) Diversification holds out the hope of generating new revenue streams and rekindling the potential for growth. That potential is, IMO, actually quite limited. Remember, most of these companies entered this niche because it was a small one where they could make some progress without needing to compete with big players. The main talk is of diversification into Business Intelligence, but whilst this seems like a nice fit with what 90% of RA solutions do anyway, it only begs a bigger question: what is to stop the big BI companies from stepping in, and taking over, the RA market. Perhaps that is the one silver lining to the cloud hanging over all of these firms – that the really big players in the data sphere may buy out the niche little guys in order to flesh out their product ranges and get an alternate foothold in some new customers. However, the danger is that as technology changes, with the limited budgets left over for R&D after low sales margins and high marketing costs, the products of the relatively small RA vendors will simply become redundant. The big BI players, by investing in more mainstream routes for development, may simply overtake the niche RA products and make them irrelevant. And if that happens, the investors can expect to see very little return for their money.
For investors backing these revenue assurance suppliers, it all comes down to timing and getting out whilst the going is good. Given the state of the world, it is fair to say some have already left it too late. For telcos, RA is best treated as a long-term commitment to managing operational risk, but investors should look for quick returns and an obvious exit strategy. Anything else is too risky.