Recent events – November 14th Letter to Shareholders, open market stock purchases of additional ALYI shares by Flow Capital, LLC (Cisneros) - have brought back a couple unanswered questions for me. I am having a bit of difficulty keeping focused and getting this into a logical concise post as my thoughts right now are all over the place like a mad woman’s footsteps! Please bear with me as this ended up being a long one!
Utiba has been around since 2001 and if you look at the deployment map on their web site it is easy to see where Utiba has installed their platform during that time. Utiba being a private company makes it difficult to get/find information outside of their website and/or interviews with executives, etc. I have to admit I haven’t paid close attention to the Utiba deployments outside of the Americas & the Caribbean but I believe the most recent one was for Tigo in Ghana. So Utiba earns revenue from the sale of the license where the contract value is fixed and subsequent to the implementation Utiba collects software maintenance and support fees, typically 15% of the initial contract value per year, as it is the software developer and bears the R&D responsibility. Utiba Americas does not share in that revenue. So as I see it if Utiba does not have ongoing license sales it essentially becomes a service company for all license sale installations including those made through Utiba Americas. In a previous post I stated that I thought Utiba had it pretty good with the Utiba Americas situation as they shared in the Utiba Americas fixed contract sales 49% and then got the 15% maintenance and support fees.
Utiba Americas has been around since early 2010 and once again if you look at the deployment map on the Utiba web site it is easy to see where Utiba Americas has clients. In 2010 Utiba Americas began actively marketing the Utiba Mobility end to end mobile financial service solution as a hosted service and as a traditional software license. Since that time the company has sold and implemented mobile financial service solutions in Bolivia, Colombia, Ecuador and Guatemala, with further implementations under way in Venezuela, Honduras and Mexico. Utiba expects to be present in 14 countries in the Americas including the United States and Canada by the end of 2013. This growing customer base has compelled Utiba to place development resources in the US to speed customer deployments and support for its evolving mobile financial services platform. Utiba’s website indicates that there are 40+ global deployments - at least 13 of them are through Utiba Americas. The website also states “Co-founders Justin Ho and Richard Matotek oversee the continued development and sale of Utiba’s leading MFS platform while actively pursuing new products and services that will represent the next wave of payment services, and bring the world closer to the company’s vision where everyone will be able to make mobile payments.” – It is pretty clear where the growth is going to come from if the company vision is going to be met!
Q1. How is Utiba funding its 49% of Utiba Americas growth?
Since Utiba is a private company it is unlikely we will ever know for sure. All the usual ways are possible – the co-founders come from money, Utiba is a cash cow, debt financing or maybe just maybe the same investors involved in Flow Capital, LLC ( Cisneros) have also taken an equity position in Utiba and continue to fund their growth.
The cryptic messages in the November 14th Letter to Shareholders have all been referred to/posted here on this board. These messages follow on the heels of:
- the October 23rd filing of the Amendment of the Articles of Incorporation to Increase the Authorized Shares which was approved by the Board of Directors on June 1st
- The open market ALYI share purchases – summarized here - by Flow Capital, LLC (Fernando Cisneros) which started June 4th only days after the Board approved the Amendment to the Articles to Increase the Authorized shares
- Utiba’s August 13th announcement of the global expansion of its Software as a Service (SaaS) offering
Q2 a) What is all this leading up to?
In a recent post I stated that I thought 1 + 1 = 1, essentially my way of saying that I believe that Utiba and Utiba Americas will end up as one entity. On how that will play out or what form it will take I have no idea but I do think it is absolutely necessary for the future. Why? Well, it is my understanding that Utiba Americas has perpetual exclusivity to the Utiba platform in the Americas & the Caribbean and in my opinion they need to be in “one house”.
Q2 b) What would be the reason(s) for doing this?
The August 22nd Letter to Shareholders states the following “In 2010, French digital security company Gemalto, best known in telecommunications as a leading provider of SIM cards, acquired Trivnet, an Israeli developer of mobile financial service software, for US$40 million. This acquisition kicked off a slow wave of market consolidation which has slowly changed the competitive landscape for Utiba and Utiba Americas. In 2011, global card franchise Visa purchased South African platform developer Fundamo, for US$110 million and in 2012, Oberthur Technologies acquired Boston based MoreMagic, an electronic recharge (topup) developer that was increasingly making incursions into mobile financial services.
These acquisitions demonstrate the interest of global multinationals in securing their foothold in mobile payments and financial services, and are changing the playing field for us and our partner Utiba. We are increasingly finding ourselves as the only platform developer and solution provider exclusively focused on mobile financial services. This is an advantage as our competitors may be distracted by other corporate directives and slower decision making processes.”
I agree that in the short term this may be an advantage over the larger entities mentioned, however, I do believe that the end game at some point down the road involves the words “buy out”!
There you have a couple of my unanswered questions and my unsubstantiated “speculative” answers. I would be interested in reading what anyone else thinks about these topics!