Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

Upstart Holdings  / Equity Capital Markets

Upstart Holdings is getting ready to complete its IPO in the US stock market in the next several weeks. Upstart Holdings provides artificial intelligence, cloud-based lending platform. Upstart Holdings is led by several ex-Google employees including its CEO Dave Girouard. It put an IPO placeholder of $100 million but this is likely to be raised further. Goldman Sachs, BofA Securities, Citi, Jefferies, and Barclays are the joint bookrunners on the deal.
The company uses the cloud-based artificial intelligence lending platform and aims to provide lower interest rates, higher approval rates, and a smoother digital experience. Since the company's inception, its bank partners have originated more than 0.62 million personal loans that have generated over 9 million repayments. As of the end of September 2020, about 70% of the Upstart-powered loans were entirely automated. 
Upstart Holdings generated revenue of $164.2 million (up 65.3% YoY) in 2019 and $146.7 million (up 44.4% YoY) in 1Q-3Q2020. From 2017 to 2019, the company's sales increased by 69.3% CAGR. The company's operating margins have steadily improved in the past few years from -13.2% in 2017, -8.0% in 2018, and -2.8% in 2019. The company's operating margins turned positive to 0.9% in 1Q-3Q 2020.

Upstart Holdings is getting ready to complete its IPO in the US stock market in the next several weeks. Upstart Holdings provides artificial intelligence, cloud-based lending platform. Upstart Holdings is led by several ex-Google employees including its CEO Dave Girouard. It put an IPO placeholder of $100 million but this is likely to be raised further. Goldman Sachs, BofA Securities, Citi, Jefferies, and Barclays are the joint bookrunners on the deal.
The company uses the cloud-based artificial intelligence lending platform and aims to provide lower interest rates, higher approval rates, and a smoother digital experience. Since the company's inception, its bank partners have originated more than 0.62 million personal loans that have generated over 9 million repayments. As of the end of September 2020, about 70% of the Upstart-powered loans were entirely automated. 
Upstart Holdings generated revenue of $164.2 million (up 65.3% YoY) in 2019 and $146.7 million (up 44.4% YoY) in 1Q-3Q2020. From 2017 to 2019, the company's sales increased by 69.3% CAGR. The company's operating margins have steadily improved in the past few years from -13.2% in 2017, -8.0% in 2018, and -2.8% in 2019. The company's operating margins turned positive to 0.9% in 1Q-3Q 2020. 

Japan Specialist

Mark Chadwick

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>  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

<ul>
<li>
<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> provides online accounting software for Japan's SMEs, providing all of the time-saving tools that small business owners need to grow. It is the Japanese version of <a href="https://www.smartkarma.com/entities/xero-ltd" target="_blank" data-smartkarma-citation="entities:390:1" rel="noopener">Xero Ltd (XRO AU)</a> or Quickbooks by <a href="https://www.smartkarma.com/entities/intuit-inc" target="_blank" data-smartkarma-citation="entities:8235:1" rel="noopener">Intuit Inc (INTU US)</a> </li>
<li>Money Forward (MF) and its domestic peer <a href="https://www.smartkarma.com/entities/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">freee (4478 JP)</a> dominate the Japanese online market, which is growing in the region of 60-70% YoY.</li>
<li>There is a huge addressable market with low online penetration. MF has the potential to build a strong competitive moat, in the absence of the global majors.</li>
<li>Today, MF looks similar to Xero in 2013. If MF follows the same growth trajectory, investors could be looking at a 9-bagger.  </li>
</ul>



Money Forward (3994 JP) provides online accounting software for Japan's SMEs, providing all of the time-saving tools that small business owners need to grow. It is the Japanese version of Xero Ltd (XRO AU) or Quickbooks by Intuit Inc (INTU US) 
Money Forward (MF) and its domestic peer freee (4478 JP) dominate the Japanese online market, which is growing in the region of 60-70% YoY.
There is a huge addressable market with low online penetration. MF has the potential to build a strong competitive moat, in the absence of the global majors.
Today, MF looks similar to Xero in 2013. If MF follows the same growth trajectory, investors could be looking at a 9-bagger.  


Small Cap Growth: Money Forward (3994) - Be Audit You Can Be

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Quantitative Analysis

As Software companies look to become the key beneficiaries of a post-COVID world, we analyse allocations among active Global managers.  We find that holdings in Software companies have risen dramatically over the last 5-years, and have accelerated further through 2020. Over the last few months, Software has become the largest industry allocation among active global managers, surpassing Pharmaceuticals and Banks along the way.  Microsoft is the key holding and continues to attract new investment from the active funds in our analysis, though managers have also been raising stakes in the second tier, led by Salesforce, Intuit and Adobe.Taken from Copley's Global Research, comprising 405 Global equity funds, with combined AUM of $760bn.

As Software companies look to become the key beneficiaries of a post-COVID world, we analyse allocations among active Global managers.  We find that holdings in Software companies have risen dramatically over the last 5-years, and have accelerated further through 2020. Over the last few months, Software has become the largest industry allocation among active global managers, surpassing Pharmaceuticals and Banks along the way.  Microsoft is the key holding and continues to attract new investment from the active funds in our analysis, though managers have also been raising stakes in the second tier, led by Salesforce, Intuit and Adobe.Taken from Copley's Global Research, comprising 405 Global equity funds, with combined AUM of $760bn.

Global Active Equity:  Managers Ramp up Software Holdings

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

In my previous insight <a href="https://www.smartkarma.com/insights/xero-a-beautiful-business-but-not-pricing-in-much-in-the-way-of-an-sme-rout" target="_blank" rel="noopener">XERO: A Beautiful Business but Not Pricing in Much in the Way of an SME Rout,</a> I mentioned that  XRO mostly caters to small business owners in Australia, NZ, and UK, along with other geographies. With the COVID-19 ravaging small and medium enterprises (SMEs) across its main markets, its questionable if the company can deliver on near term growth.  In this insight, I'll take a look at the company's FY20 results (year ending Mar 20) which were reported earlier today.

In my previous insight XERO: A Beautiful Business but Not Pricing in Much in the Way of an SME Rout, I mentioned that  XRO mostly caters to small business owners in Australia, NZ, and UK, along with other geographies. With the COVID-19 ravaging small and medium enterprises (SMEs) across its main markets, its questionable if the company can deliver on near term growth.  In this insight, I'll take a look at the company's FY20 results (year ending Mar 20) which were reported earlier today.

Xero Results Update: Good Results, Tepid Outlook. Earnings Cut Making It Even More Expensive

United States

Intuit Inc. develops and markets business and financial management software solutions for small and medium sized businesses, financial institutions, consumers, and accounting professionals  The Company provides software for small business management and payroll processing, personal finance, and tax preparation and filing.

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Intuit Inc (INTU US)

Upstart Holdings IPO Preview

Upstart Holdings is getting ready to complete its IPO in the US stock market in the next several weeks. Upstart Holdings provides artificial...

Douglas Kim

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

Small Cap Growth: Money Forward (3994) - Be Audit You Can Be

Money Forward (3994 JP) is the Japanese

Mark Chadwick

Global Active Equity: Managers Ramp up Software Holdings

As Software companies look to become the key beneficiaries of a post-COVID world, we analyse allocations among active Global managers. We find...

Steven Holden

Xero Results Update: Good Results, Tepid Outlook. Earnings Cut Making It Even More Expensive

In my previous insight XERO: A Beautiful Business but Not Pricing in Much in the Way of an SME Rout, I mentioned that XRO mostly caters to small...

Sumeet Singh

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