Shares of 1-Page Ltd (ASX: 1PG) have entered a trading halt today pending an announcement of a potential capital raising.
Who is 1-Page?
1-Page is a company that is striving to revolutionise the human resources industry. The company provides its clients with the ability to rank and select job candidates by asking them to solve real world challenges related to the position they're applying for.
This process not only saves companies time and costs (by significantly reducing time-to-hire), it also better ensures that only individuals who are serious about the position apply in the first place. In turn, that leads to reduction in staff turnover.
Indeed, there is no denying the market's enthusiasm for this Silicon Valley-based group. The shares are trading at $4.55, up an incredible 2,175% since being floated at 20 cents each in October 2014. They hit a high of $5.69 just last month.
Why the capital raising?
Technology start-ups like 1-Page typically burn through cash at unbelievable rates as they focus heavily on marketing and product development.
Although this certainly impacts profitability (or lack thereof) in the early years, it is also a necessary practice to build a customer base, and to hold off any fast moving competition to better ensure the company's success.
XERO FPO NZ (ASX: XRO) and Freelancer Ltd (ASX: FLN) are two other tech companies spending big now in the hope of a better, and more profitable, future.
In the half-year period ended 31 July 2015, 1-Page reported revenue of just $158,900 and cash receipts of $124,800. It then reported $3.7 million in payments to suppliers and employees and $502,000 in research and development costs. It ended the period with a little over $10 million in cash – thanks mostly to $9.6 million in proceeds from the issue of shares.
It is clear that 1-Page is burning through the cash at a quick rate in order to fund its expansion, so further cash injections certainly appear necessary. Given the strength of the group's share price performance, it's also hardly surprising that they're choosing to do it now.
What happens now?
So far, the company hasn't released any specific information or terms regarding the capital raising, only that it is considering one. The terms should be released by Wednesday, 28 October 2015, so investors will have a better idea of what is involved then.
