Boku Inc Q&A: Growth trends to continue after lockdown (LON:BOKU)


Boku Inc (LON:BOKU) Chief Executive Officer Jon Prideaux caught up with DirectorsTalk for an exclusive interview to discuss the acquisition of Fortumo, what this means for the company financially, further consolidation in the market and growth after lockdown.

Q1: We see that you announced the acquisition of your competitor Fortumo, can you tell us about Fortumo and the strategic rationale for the deal?

A1: Fortumo is sort of one of relatively few companies operating in direct carrier billing and they‘ve made a speciality of working with mostly small and medium sized enterprise and mostly using the settlement model. By focussing and concentrating on that niche, they’ve built themselves a profitable business and they’ve operated at relatively low cost.

Fortumo is an Estonian company, it has about 73 people and in 2019, it did about $7.2 million worth of revenue and generated EBIDTA of about $2.3 million. So, a focussed company operating specifically in a realm of the market for which they’ve come up with a customised offer, a self-service technology on their website and we’ve long respected and admired the way in which they operate.

Q2: Can you briefly outline the terms of the deal and what it means financially for the company?

A2: The enterprise value is $41 million, in fact the total maximum consideration is $45 million and that’s because we’re buying the company with $4 million worth of net working capital. It’s subject to payment upfront of about $39.6 million in a mixture of cash and shares, the shares are just to roll over the interest of employees from Fortumo’s stock into Boku’s stock. There’s a $5.4 million earn-out, 12% of the consideration which his payable subject to the achievement of an EBITDA earn-out condition. So, if they achieve €4.3 million worth of EBITDA in the year ending June 2021 then they’ll get 100% payout, if it’s below €2 million then there’s nothing.

So, I think a fairly clean structure, $41 million worth of enterprise value and an earn-out of 12% based on achieving a 4.3 million worth of EBITDA in the next 12 months.

Q3: From what you have said, the acquisition of Fortumo appears to cement your position as the leading player in the direct carrier billing market. Do you see any room for further consolidation in the market and is there an opportunity now to win further business from your remaining competitors?

A3: This is very much a merger from strength, you’re taking the leader in carrier billing, that’s us, so the volume player working with all the large merchants like Apple, Sony, Spotify, Netflix, Goole and so forth so we’re the larger player. We’re teaming up together with essentially the only other portable player in the direct carrier billing marketplace.

So, two strong companies coming together and that clearly offers the potential for us to re-enforce each other’s position so we expect the Fortum merchants to be able to take advantage of our carrier connection and to a certain extent, there are some carrier connections that Fortumo have for their system which will complement our network more broadly.

Consolidation has been happening in carrier billing, pretty much organically, as we have been growing, others of our competitors have been affected and that’s clearly helped us to grow our market share and this clearly, gives that a bit of a turbo boost.

To your direct question about further consolidation, clearly, I’ve always said scale in platform businesses is an important thing, assets like this don’t come up very often and so we were keen and happy to take the opportunity to bring Fortumo into our family. Whether another such opportunity would arise is entirely speculative so I‘m not really in a position to make any predictions there.

Q4: From what we’ve seen, Boku is benefiting from increased numbers of users as a result of the lockdowns. Do you expect these trends to continue and what do you see driving the company’s growth as the world returns to a more normal situation?

A4: First of all, let’s just talk about our 5-month trading which covers the period of the lockdown. You’re quite right, as more people spent more time at home, that increased demand for home entertainment. Some of that, I’m sure, will be transient, some of that will just be related to the fact that more people had more time on their hands and therefore played more games and thus did a few more transactions.

Some of it is presaging a wider change in behaviour, people have discovered the joys of Netflix at record rates, it has accelerated adoption of some of these digital entertainment technologies and the acceleration adoption is going to stick. We’re going to find that those people who have started to watch films on Netflix or take out other various digital subscriptions will continue to operate them.

So, as lockdown eases, thank goodness, we’ll find ourselves in a position then where our growth is going to be driven by some of that accelerated adoption and also, frankly, by the normal process of our business. We have had a record half in terms of new deployments with connections being put live for Netflix, for Google, for Sony, for Spotify, there’s been an announcement recently by a streaming music provider where we put live new connections in Germany and in Switzerland.

We’ve gone from two mobile wallets operating on our platform up to seven in May so all of these things are just in the normal course of our business and our ability to operate, to execute on our strategy has really not been affected by all of us, essentially, having to work from home. We’

We’re a company that was well-used to working remotely and we’ve been able to execute, put it successfully, through the period of lockdown and that will sustain our growth as we come out of it.

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