One ASX tech share that's experienced a particularly choppy 12 months is donor management company Pushpay Holdings Ltd (ASX: PPH).
Pushpay shares initially emerged as a COVID winner as churchgoers embraced digital giving and engagement.
The Pushpay share price doubled from pre-pandemic levels only to falter as investors were left wanting more.
Since then, the Pushpay share price has been seesawing, spurred by mixed results and takeover interest.
Pushpay shares have gained around 25% in the last six months, but are down by roughly the same amount over the last year.
As Pushpay shares continue to divide the market, let's take a look at the bull case and bear case for this ASX tech share.
Bulls say
Terrific economics
At face value, Pushpay is a terrific business. The company's software-first model is not only very sticky, but it's also beautifully scalable.
It doesn't matter if Pushpay serves another 100 or 10,000 churches. The software has already been developed and it works wonderfully. As a result, revenue can grow at a much faster pace than expenses because there are minimal costs involved in servicing an extra customer.
This leads to something called operating leverage, which boosts Pushpay's bottom line and turns the company into a free cash flow machine.
For the year ended 31 March 2022, Pushpay generated around US$61 million of free cash flow, excluding its acquisition of Resi Media.
That same year, the company reported underlying earnings before interest, tax, depreciation, amortisation and foreign exchange (EBITDAF) of US$62 million.
This means nearly all of the company's earnings translated into free cash flow. A tremendous feat that makes Pushpay one of the best cash flow converting companies on the ASX.
Cross-selling opportunities
Pushpay's roots are in digital giving and payment processing. But the company has made two meaningful acquisitions in recent years.
At the end of 2019, Pushpay announced the US$87.5 million acquisition of Church Community Builder, a leading provider of church management software.
And in August last year, it made a US$150 million play for Resi Media, a video streaming solutions provider that specialises in the faith sector.
These complementary products provide Pushpay with an opportunity to cross-sell its suite of solutions to its existing customer base.
As it stands, only 24% of Pushpay's customers use two products and just 4% use all three. This cross-selling potential not only presents low-hanging fruit for revenue growth but should also help with customer retention.
Catholic expansion
Pushpay has traditionally focused on the Protestant faith. But recognising an opportunity to tap into a large addressable market, it's been busy working on a tailored product for the Catholic segment.
At the end of 31 March 2022, Pushpay had onboarded 173 Catholic customers.
With 17,000 Catholic parishes in the US, Pushpay thinks the estimated total addressable market is between US$600 million and US$700 million in annual revenue.
The company is eyeing a 25% market share of Catholic parishes in the long term, which would significantly propel Pushpay's revenue base.
Bears say
Now that we've covered the blue-sky opportunity for Pushpay, let's turn our attention to what's been weighing shares down.
Slowing growth
Pushpay's acquisitions have somewhat masked a recent trend of slowing revenue and customer growth.
In FY21, Pushpay recorded 40% revenue growth while the most recent financial year saw the company generating 13% growth.
While impressive at first glance, FY21's results include an extra eight months' contribution from Church Community Builder. And excluding the Resi acquisition, Pushpay delivered just 6% revenue growth in FY22.
The company is guiding for revenue growth between 10% and 15% in FY23, which is much softer than what investors have become accustomed to over the years.
After gobbling up the large church segment of the market, the business could be reaching maturity.
It added 203 net new customers in FY21 and around 550 net new customers in FY22 excluding Resi, taking its total customer count to 14,508. The company itself admitted FY22 was a soft period, with net new customers and go-to-market performance lower than expectations.
That said, with Pushpay's improved positioning in the market and beefed-up product suite, it's worth looking beyond the headline customer numbers to monitor product utilisations as well.
Revolving door of senior figures
Over the years, a number of important figures have exited the Pushpay business. The first was co-founder Eliot Crowther who left in 2018 and cashed out his entire NZ$100 million stake.
Fellow co-founder and CEO Chris Heaslip followed him out the door a year later.
Last year, the company's largest shareholder, the Huljich family, also parted ways with the business and sold down their entire stake. The Huljich family were cornerstone investors in Pushpay and long-serving board members.
Not long after, long-standing director and former interim CEO Bruce Gordon retired from the board.
Currently leading the company is CEO Molly Matthews who was internally promoted from her role as chief customer officer.
At the moment, she's leading the business without a permanent CFO after Shane Sampson jumped ship to fellow Kiwi business Serko Ltd (ASX: SKO) in October last year. He'd been with the business for six years.
So what's the verdict?
Pushpay's business model and market positioning make for a compelling investment case. It's how the company has become the formidable force it is today.
But the ASX tech share is now in its next phase of growth, venturing outside of its core offering while also trying to crack into the lucrative Catholic segment.
Investors must have faith that management will be able to execute.
