Boku’s new CEO on a cash generative, profitable, fast growing top line

Boku Inc Chief Executive Officer Stuart Neal caught up with DirectorsTalk for an exclusive interview to discuss primary drivers behind the exceptional growth, financial highlights, increasing monthly active users, doubling the business, and what we can expect over the coming year.

Q1: Stuart, Boku released its full-year results today showing an exceptional year of growth driven by the addition of more digital wallets in account to account connections to your global network of local payment methods, and delivering revenue and EBITDA are significantly ahead of initial expectations. If we could just start by talking about what the primary drivers were behind the exceptional revenue growth, particularly around the terms of digital wallets in account to account connections?

A1: Firstly, a nod to my predecessor Jon Prideaux who was CEO until the end of last year so in effect these are his results but ultimately, what you see in our financials is a result of a strategy that’s been hatching over a number of years. That strategy is essentially tapping into what is a global trend of people preferring to use what we’re calling local payment methods, particularly in e-commerce, to pay for their favourite goods and services in a given market.

It’s hard to imagine that, when we stand in in the UK, around the world only about a third of e-commerce is now taking place on a Visa or a MasterCard debit card, the rest is happening on what we call local payment methods. Those local payment methods include our heritage in carrier billing where people are charging digital goods and services to their phone bill and then settling with their carrier at the end of the month to now, what we call digital wallets.  Imagine a world where you run your life, your equivalents of Uber and Just Eat and Deliveroo, and your loyalty points are all gathered through one wallet, your preference is to want to pay for all those services through that wallet. So, this emergence of digital wallets has become a new global trend.

Finally, and increasingly, the new payment methods what we call account to account, which is tapping into a global shift and advancements in online banking to now be able to use your bank account to be able to directly make purchases from merchants. What the business has been doing is aggregating all of those domestic local payment methods to create one global network and we offer that global network up to our big global merchants who are primarily West Coast US technology companies. So, when our merchants decide they want to expand internationally we hook them up to the local payment methods that they need to be connected to.

So, the growth that you’re seeing in our financials is the connections that we made maybe 12/18 months ago for our merchants. What we’re predicting going forward is that trend will continue as we have more and more connectivity of expanding the network of LPMs at the back end and then adding more merchants to our network at the front end.

Q2: Could you just elaborate a little bit more on the other financial highlights?

A2: This is a payments business and payments businesses operate on scale, there’s no coincidence in the world of payments where the most successful companies are giant global organisations.

So, we’ve been driving revenues up 30% on the back of growth in adding connectivity, and more connectivity means that our monthly active user numbers have grown to over 67 million in the month of December, that’s been fuelled by payment launches for our customers. Take rates are a blend of the products that we have connected to the network so some products like settlement model, carrier billing plus wallets or high take rate products more of those in the mix has driven our average take rate up to 81 bips so that’s an improvement year on year. I think it’s something that will fluctuate over time as we add more and more products into the into the network.

Again, EBITDA has grown by almost 30%, so up 27%, and that’s net of a couple of one-timers that we decided to put through late in the in the day to reward our staff for what was a phenomenal year. So, if you back those out, you’ve got a business that’s growing top line at 30%, bottom line pretty much underlying 30%, and actually that’s generating a sizable amount of cash and the Group-owned cash, that’s a portion of the cash sitting in our bank accounts is around about $70 million.

So, cash generative, profitable, fast growing top line, they’re the highlights on the financials.

Q3: With regards to non-financial KPIs, how did the group manage to substantially increase its monthly active users, new consumers making transactions, and total payment volumes?

A3: I think one is a function of the other. We try to be as useful to our customers as possible, what we are not is dumb pipes where a merchant will plug in and then we just leave them to it.

We do work quite hard to be useful to our merchants across the lifecycle so helping them acquire users through our payment marketing products, offering them the capability to offer more payment choice in a market, means they can attract more subscribers and then optimising the data to make sure that each connection to each LPM converts as high as it can. It’s all about helping them drive users.

So, the more things we can do for the merchants, the more users they can attract and therefore the more users we see on average across our platform. Actually, it’s the best leading indicator of our success, more users making more purchases equals more revenue for the business, and that’s why we track these as our as leading indicators.

Q4: Just considering your statement about the potential to double the business over the midterm, what key strategies or initiatives does the business plan to implement, to achieve the ambitious growth?

A4: To a large extent, they’re already in place so they’re not products we need to build, contracts we need to win, the path to doubling the business is laid out and it’s more a question of execution, working with our customers who are these large global merchants to roll out their services to all of the local payment methods. So, to some extent, I can see the path to doubling the business without us relying on certain esoteric factors happening.

Can we do more things for Amazon which is contract we won 18 months ago, we’ve won some good local market business with Amazon for Amazon Prime, but what about Amazon e-commerce, what about AWS? So, there’s an expansion strategy within each of our large global merchants that gives us line of sight to doubling the business.

I think where it gets really exciting is when you think even beyond that, so with a five-year time horizon, what else can we do with this phenomenal platform that we’ve created that covers continents and hundreds of payment methods. We’re starting to make little exploratory moves into slightly adjacent verticals so we’ve started working with an online travel company in Asia for example we’re looking at ticketing, we’re looking at software subscriptions, we’re looking at other things. Maybe that’s where you go beyond just doubling the business and actually ramping this thing exponentially in the five-year time horizon.

Q5: Just to finish then, is there anything else that you’d like to add in regard to what we can expect to see from Boku over the next year?

A5: I think the other thing that I would say is back to the subject of how do we make ourselves more useful to our merchants, we’re very very good at creating harmonious APIs from disaggregated complex technology, either at carriers or wallets that are now increasingly at A2A.

There are two things that we need to do to really take advantage of this much much bigger market opportunity.

The first one is making sure that our platform and our back-end systems and processes scale with the business. So, there’s quite a lot of work happening behind the scenes to make sure that we are automated, that we have machines doing a lot of work to help us get from $10 billion of TPV, to be able to cope with $50/100 million of TPV down the line. So, there’s getting ready for the future piece of work.

There’s then optimising the opportunity to help customers by moving money in more bases. So, as we do more work with wallets, we’ll be flowing more currency through our business which means we need to add to our existing portfolio of around 60 licenses to move money, 35 legal entities, hundreds of bank accounts so we need sophisticated treasury and money movement products to be able to help customers.

With that comes an opportunity for us to make more margin, if we’re flowing $50 billion through our business, there’s an opportunity to convert 10% of that flow then there’s an opportunity for FX margins on top of our existing take rates.

So, I think it’s all upside, and it’s all stuff that is being driven by the demands of our existing payments business.

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