Jurgis,
The fact that you are rejecting PLPM due to its lack of profitability says a lot about your rigor in value investing research.
Allow me to explain their business model and why they have not been profitable in the past and why this is likely to change.
They are a payment processor with a focus on foreign currency transactions. So anything that involves FX, foreign currency transaction, that's really their specialty. They operate in 18 countries around the world and they do business with some of the biggest banks in the world.
They've invested a lot of money, over $70M, and many years into building their technology platform and they're now at the point where they are leveraging the infrastructure they've built over the years. So if you think about it, if you do $100 in revenue but it cost you $90 to keep your lights on, that's not a great business. Once you start getting $200-$300 in revenue, as long as your cost structure is intact, you have a much better business on your hands.I think that's where Planet Payment is at, and I think they're about to have a big breakout year in 2013 as well.
So if we go back and look at their revenue, they've grown from $8.8M in '07 to $41.8M through the end of last year. So they've grown quite rapidly and they're at a point now where they're experiencing 'the network effect' - whereby they're seeing much more adoption by merchants and acquiring banks and processor partners to where it becomes sticky and everybody starts to want to use them. The space that they operate in, if you look at Visa and MasterCard, there's tremendous growth going on in payments and people using their plastic, but one of the big areas that's growing double digits is what's called 'global' or 'cross-border transactions.' This is where the Planet Payment's sweet spot is. They have the ability to process a payment in any native currency, at the point-of-sale. It's a currency neutral technology and nobody really has that.
If you look at the breakout of spending over the years, the US has dominated. It's changing to where there's a lot more credit card spending happening overseas in emerging markets and certainly places like Asia-Pacific, which is a big part of their business. If you think about the globalization of the world, cross-border transactions, where you and I are spending more money over there and they're coming here and spending more money - that's where Planet Payment is going to benefit. |
