Equity Analyst, LightStream Research

Supun Walpola

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

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

Japan Specialist

Mark Chadwick

<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

<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> (MF) reported its 2Q FY11/20 financial results last week. MF’s 2Q FY11/20 revenue beat consensus by 6.1% and the operating loss was also lower than the consensus. However, despite this, we believe MF’s 2Q FY11/20 financial results should be interpreted with caution. We go through MF’s 2Q FY11/20 financial results in detail below.

Money Forward (3994 JP) (MF) reported its 2Q FY11/20 financial results last week. MF’s 2Q FY11/20 revenue beat consensus by 6.1% and the operating loss was also lower than the consensus. However, despite this, we believe MF’s 2Q FY11/20 financial results should be interpreted with caution. We go through MF’s 2Q FY11/20 financial results in detail below.

Money Forward: 2Q Results Are a Mixed Bag; We Remain Cautious

<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 (MF) share price has increased by around 70% since the first week of April. This is mostly due to the perception that enterprise SaaS operations are a defensive business model during the pandemic. However, we believe the concerns we had about MF in our previous notes are still valid. Despite shifting to a more affordable (at the same time less profitable for MF) price plan, and spending heavily on subsidies, MF’s enterprise SaaS business has not seen a marked increase in new customers. We see positives for MF in its fintech operations, however, these businesses are still in their early stages of monetisation. We also believe MF’s chances of turning profitable is slim in the next few years as we expect the company to spend heavily on customer acquisition. We believe further upside for MF is limited in the short-run. Our SOTP valuation gives MF a FY1 target price of JPY 6,707, which is only a slight upside from the current market price (of JPY 6,580 as of 8th of July 2020).

Money Forward (3994 JP)’s (MF) share price has increased by around 70% since the first week of April. This is mostly due to the perception that enterprise SaaS operations are a defensive business model during the pandemic. However, we believe the concerns we had about MF in our previous notes are still valid. Despite shifting to a more affordable (at the same time less profitable for MF) price plan, and spending heavily on subsidies, MF’s enterprise SaaS business has not seen a marked increase in new customers. We see positives for MF in its fintech operations, however, these businesses are still in their early stages of monetisation. We also believe MF’s chances of turning profitable is slim in the next few years as we expect the company to spend heavily on customer acquisition. We believe further upside for MF is limited in the short-run. Our SOTP valuation gives MF a FY1 target price of JPY 6,707, which is only a slight upside from the current market price (of JPY 6,580 as of 8th of July 2020).

Money Forward: Upside Is Capped in the Short-Run

Japan

Money Forward, Inc. develops mobile application software. The Company produces automatic household account book softwares, household account book application softwares, and other products. Money Forward also provides personal financial management, cloud based accounting solutions, and other services.

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Money Forward (3994 JP)

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

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

Money Forward (3994 JP) is the Japanese

Mark Chadwick

Money Forward: 2Q Results Are a Mixed Bag; We Remain Cautious

Money Forward (3994 JP) (MF) reported its 2Q FY11/20 financial results last week. MF’s 2Q FY11/20 revenue beat consensus by 6.1% and the operating...

Supun Walpola

Money Forward: Upside Is Capped in the Short-Run

Money Forward (3994 JP)’s (MF) share price has increased by around 70% since the first week of April. This is mostly due to the perception that...

Supun Walpola

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