Key points:
- Loopup has announced a material contract win and the shares are up 33%
- But the key point is whether this answers the long term question?
- That niche of cloud telecoms – how long is that going to last?
Loopup (LON: LOOP) shares are up 33% currently, having hit 40% up, on news of a material contract win. Given that the net cashflow claimed from the contract is getting close to the total market capitalisation – and was over that before the announcement – then yes, we can think of this as a material contract. On the other hand we do have to wonder whether the time and place for Loopup has passed. They're in a technologically difficult part of the telecoms market, one that's it's not entirely obvious is going to continue to exist.
Loopup's share price is considerably down from when we first started following it. But then so is revenue and profits. There have been surges, H1 2020 for Loopup looked good. But then a 50% crash in Loopup shares and most recently they were predicting revenue down again. We thus can have a decidedly double view of Loopup.
The current announcement is that there's been this material contract win:
Highlights
Meetings: New material contract win expected to generate c.£10 million of revenue and c.£5 million of net cash in the 12 months from October 2022 to September 2023
Cloud Telephony: 133% increase in customer wins and 252% increase in individual contract wins during the second year post service launch
All of which is very nice and it may well be both cash and profit generative in the short term. It's also possible to wonder, even worry, about the long term. Because it's not wholly and entirely obvious that the niche being sought is going to exist in time.
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The problem is to do with the very field that Loopup is working in. Yes, it's entirely true that cloud and VOIP telephony is a growth field. Just as with WhatsApp, Facebook Messenger, Skype and all that for individuals, the large corporates are going to be moving over. To the extent that they're not already on VOIP for example. Yes, there's clearly a market for those who can integrate such systems too. At the scale of a corporation this is not wave a wand stuff – it requires engineers who know what they're doing. Perhaps more, paperwork logistics to ensure that it works seamlessly across national and telecoms company boundaries. All of that's fine as the identification of a business niche.
Except we're also in a world of rapidly falling prices. Computing, cloud, telecoms, they're all rapidly deflating for any given level of performance. This is the same thing as the insistence that everyone's moving to cheaper cloud solutions and so on. But that then brings on the grand problem – how do you maintain margins in a deflating business environment? It's not wholly obvious that it can be done, let alone that it is easy. And therein lies the problem with trying to value Loopup. What is the long term future of this niche that they're trying to occupy? After all, it could become true that as cloud telephony etc becomes ever cheaper then it also becomes more simple – and thus what need for a systems integrator of it?