Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">freee (4478 JP)</a>  reported its 1QFY06/21 results yesterday (11th November) which saw a 49.2% YoY growth in revenues while operating losses for the quarter dropped to 12.2% of revenues from 32.6% in 1QFY06/20. The reported revenue beat consensus estimates by 4%. The consensus called for operating losses of JPY300m while the company reported operating losses of JPY272m for the first quarter of FY06/2021.

freee (4478 JP)  reported its 1QFY06/21 results yesterday (11th November) which saw a 49.2% YoY growth in revenues while operating losses for the quarter dropped to 12.2% of revenues from 32.6% in 1QFY06/20. The reported revenue beat consensus estimates by 4%. The consensus called for operating losses of JPY300m while the company reported operating losses of JPY272m for the first quarter of FY06/2021.

Freee KK: 1QFY21 Results Show Profits Are Possible Over the Next 12-18 Months

Japan Specialist

Mark Chadwick

<a href="https://www.smartkarma.com/entities/money-forward-inc" target="_blank" data-smartkarma-citation="entities:25919:1" rel="noopener">Money Forward (3994 JP)</a> is a financial platform for both individuals and businesses. The adoption of cloud-based Software as a Service (SaaS) is driving rapid sales growth for business accounting software and, with penetration still at low levels, this trend is expected to continue. Money Forward operates under four main domains: MF Home (personal financial management), MF Business (cloud accounting), MF Finance (payment services / venture fund) and MF X (technology solutions).

Money Forward (3994 JP) is a financial platform for both individuals and businesses. The adoption of cloud-based Software as a Service (SaaS) is driving rapid sales growth for business accounting software and, with penetration still at low levels, this trend is expected to continue. Money Forward operates under four main domains: MF Home (personal financial management), MF Business (cloud accounting), MF Finance (payment services / venture fund) and MF X (technology solutions).   

Small Cap Growth: Money Forward (3994) - Transforming Japan's Accounts

<a href="https://www.smartkarma.com/entities/eguarantee-inc" target="_blank" data-smartkarma-citation="entities:6600:1" rel="noopener">eGuarantee, Inc. (8771 JP)</a> is engaged in the business of undertaking and transferring credit risks in Japan. The company offers guarantee services to about 70,000 businesses in Japan and the company transfers the credit risk of its portfolio across its several funds that are open to institutional investors. According to the company, it does not hold any risks associated with its credit portfolio and in the event of any bad debt, the fund will bear most of the costs.The company shares have rallied 58% since the beginning of this year driven by the ongoing Covid-19 pandemic that is expected to cause a large number of businesses to go bankrupt in the country. During economic downturns and market volatilities, the company raises its guarantee fee to reflect the increased risk associated with its guaranteed counterparties, and any delay in payments.

eGuarantee, Inc. (8771 JP) is engaged in the business of undertaking and transferring credit risks in Japan. The company offers guarantee services to about 70,000 businesses in Japan and the company transfers the credit risk of its portfolio across its several funds that are open to institutional investors. According to the company, it does not hold any risks associated with its credit portfolio and in the event of any bad debt, the fund will bear most of the costs.The company shares have rallied 58% since the beginning of this year driven by the ongoing Covid-19 pandemic that is expected to cause a large number of businesses to go bankrupt in the country. During economic downturns and market volatilities, the company raises its guarantee fee to reflect the increased risk associated with its guaranteed counterparties, and any delay in payments.

EGuarantee: A Resilient Business Model that Should Further Benefit from Pandemic Driven-Demand

Supun Walpola

Despite shifting to a more affordable price plan and spending heavily on subsidies, <a href="https://www.smartkarma.com/entities/money-forward-inc" target="_blank" data-smartkarma-citation="entities:25919:1" rel="noopener">Money Forward (3994 JP)</a>’s enterprise SaaS business has failed to accelerate its user growth as expected. This continues to put pressure on MF’s profitability as the company keeps spending heavily on customer acquisition. Therefore, in contrast to its counterpart, <a href="https://www.smartkarma.com/entities/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">freee (4478 JP)</a>, MF’s recent price rally does not seem to be supported by improving profitability.  We expect a near-term correction as both customer growth and profitability disappoint over the next few quarters.

Despite shifting to a more affordable price plan and spending heavily on subsidies, Money Forward (3994 JP)’s enterprise SaaS business has failed to accelerate its user growth as expected. This continues to put pressure on MF’s profitability as the company keeps spending heavily on customer acquisition. Therefore, in contrast to its counterpart, freee (4478 JP), MF’s recent price rally does not seem to be supported by improving profitability.  We expect a near-term correction as both customer growth and profitability disappoint over the next few quarters.  

Money Forward: Recent Price Rally Is Not Backed by Improving Profitability – Unlike Freee

<a href="https://www.smartkarma.com/entities/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">freee (4478 JP)</a>  provides cloud-based accounting software for small businesses and individuals.  Freee serves over 220,000 clients with an annualized recurring revenue of around $80m.  In the year ended June, revenue grew 53% YoY. There is a huge opportunity to grow in the nascent cloud accounting market in Japan. With a strong and well-incentivised management team, Freee is well placed to build a strong moat around its business. At 68x TTM revenue, the valuation is way up in the clouds.  <section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/165/623/original/Annual-Recurring-Revenue-ARR_chartbuilder.png?1602902386" class="editor-image img-responsive" data-smartkarma-image-id="165623"></figure></section></section>

freee (4478 JP)  provides cloud-based accounting software for small businesses and individuals.  Freee serves over 220,000 clients with an annualized recurring revenue of around $80m.  In the year ended June, revenue grew 53% YoY. There is a huge opportunity to grow in the nascent cloud accounting market in Japan. With a strong and well-incentivised management team, Freee is well placed to build a strong moat around its business. At 68x TTM revenue, the valuation is way up in the clouds.  

Small Cap Growth: Freee (4478) - Counting Clouds

Japan

freee K.K. develops software products. The Company produces cloud based accounting softwares, automatic online accounting systems, and other products. freee provides its services throughout Japan.

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Freee KK (4478 JP)

Freee KK: 1QFY21 Results Show Profits Are Possible Over the Next 12-18 Months

Freee reported its 1QFY06/21 results yesterday (11th November) which saw a 49.2% YoY growth in revenues while operating losses for the quarter...

Shifara Samsudeen, ACMA, CGMA

Small Cap Growth: Money Forward (3994) - Transforming Japan's Accounts

Money Forward provides cloud-based accounting software that is helping Japanese companies to transition to a digital future.

Mark Chadwick

EGuarantee: A Resilient Business Model that Should Further Benefit from Pandemic Driven-Demand

eGuarantee is engaged in the business of undertaking and transferring credit risks in Japan. In this insight, we deep dive into eGuarantee's...

Shifara Samsudeen, ACMA, CGMA

Money Forward: Recent Price Rally Is Not Backed by Improving Profitability – Unlike Freee

Money Forward’s recent price rally does not seem to be supported by improving profitability. We expect a correction as both customer growth and...

Supun Walpola

Small Cap Growth: Freee (4478) - Counting Clouds

Small Cap Growth: Freee is Japan's number one provider of cloud accounting software. Early stage growth with large TAM. Visionary management team;...

Mark Chadwick

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