Former hot stock Getswift Ltd (ASX: GSW) has seen its share price smashed almost 25% in less than two weeks, since momentum traders and other investors have begun abandoning the stock, due to its loss of momentum or rather optimistic valuation.
At its peak, the company had a market capitalisation of around $450 million, remarkably close to the peak market capitalisation of fellow story stock 1Page (ASX:1PG), before it started its painful descent to (virtually) zero.
I am happy for my colleague Owen Raszkiewicz, who seems to have nailed the (temporary?) top with this article urging caution about Getswift.
It may be that the reason that the Getswift share price is falling is that it was previously overvalued.
There appears to have been very little published valuation work done on the company, and the work that does exist is optimistic in style.
For example, my colleague wrote:
"When this deal hits its peak, management estimates that it will generate annual sales in excess of $138 million.
Based on this deal alone and the sector's average price-to-sales ratio of 4.3x, I believe GetSwift could easily command a market capitalisation of $593 million.
If you add in the other deals it has on the table, excluding those that are in the works, then I see the company being worth upwards of $700 million in two to three years."
However, this analysis assumes that the company can grow revenue to over $162 million within a couple of years. While the company has certainly tried to lead investors to believe this is possible, this outcome is far from certain.
For example, the company says its much touted partnership with NA Willliams "is expected to significantly increase the company's reoccurring revenues by more than $138,000,000 per year once fully captured." It did say the project "will take at least 15-19 months due to the project scope, size and complexity of the channel partners," but I read that as a minimum, rather than an expected completion date. I would not be confident in assuming that means the company will be billing $138m in revenue within 2-3 years. I also wonder whether it is guaranteed to eventually reach $138m, since the announcement did not mention what the contracted minimum amount of yearly revenue from the deal is (if any).
The company also recently announced that it had surpassed 3 million deliveries "less than 3 months after reaching its second two million deliveries." That implies the company supported no more than 1 million deliveries in the last 2 months. At that rate — even assuming they get 30 cents per delivery (which they won't, due to volume discounts) — revenue for a full year would be no more than $1.8 million. Of course, it should continue growing throughout, but the company clearly has a long way to go until it reaches the kind of revenues some shareholders expect.
Meantime, there are lots of different software programs that do something similar to what Getswift claims to do. Indeed, whereas Pizza Hut is apparently going to use Getswift, Domino's Pizza Enterprises Ltd. (ASX: DMP) has its own software. Meantime, Zoom2U powers DHL deliveries, offering at least some of the advantages Getswift says it can offer. Other competitors include Sendle, Onfleet, Bringg and Shipster. Now, I'm not saying that any of these other options are necessarily better than Getswift, but nor is it clear to me why Getswift is so much better than them. To me, it looks like a reasonably crowded space.
I have no real view on whether Getswift is a good or a bad investment. However, I have seen many companies promise massive future revenue, but only some of them deliver. Thus, I would not hold shares at the current share price until the company can actually show some significant revenue and gross profit (if not actual profit). However, I would not rule out the possibility that the company could succeed in the long term, either.
