In a recent earnings call, Netcapital Inc. (ticker not provided) disclosed a significant drop in its third-quarter revenue, which fell by 54% to $1 million compared to $2.3 million in the same period last year. The decrease was mainly due to a reduction in equity-based consulting services. Despite the downturn, Netcapital's CEO, Martin Kay, expressed optimism for the company's future, citing the platform's growth and a recent $4 million public offering that bolstered the company's working capital.
Key Takeaways
- Netcapital's revenue decreased by 54% in the third quarter, falling to $1 million.
- The decrease was primarily due to a reduction in revenue from equity-based contracts and funding portal revenues.
- Diluted earnings per share showed a loss of $0.19, down from a profit of $0.33 in the previous year.
- CEO Martin Kay remains optimistic about future prospects and the platform's growth.
Company Outlook
- CEO Martin Kay highlighted the scalability of the Netcapital platform as a key driver for future growth.
- Management plans to continue expanding the platform, which serves both accredited and nonaccredited investors.
Bearish Highlights
- The company experienced a significant decrease in consulting service revenues, which impacted overall financial performance.
Bullish Highlights
- Despite the quarterly decrease, funding portal revenues increased by over 70% in the first 9 months of fiscal 2024.
- The $4 million public offering in December is seen as a positive development for the company's financial stability.
Misses
- Netcapital missed expectations with a decrease in revenues from equity-based contracts and funding portal revenues.
Q&A Highlights
- There was a discussion about the potential for industry consolidation and Netcapital's position within it. CEO Martin Kay acknowledged the early stage of the industry and openness to creating shareholder value through partnerships.
- The company is in a closed beta with its ATS system, with a broad launch expected in the near future.
In conclusion, Netcapital Inc. faces challenges due to a decrease in revenue from consulting services and funding portal revenues. However, the company remains optimistic, with a focus on its scalable platform and a recent capital raise aimed at strengthening its balance sheet. The management team is also exploring strategic opportunities in the evolving crowdfunding market and is progressing towards the launch of its alternative trading system.
InvestingPro Insights
Netcapital Inc. has navigated through a challenging quarter, with a notable decline in third-quarter revenue. The latest data from InvestingPro sheds light on the company's financial health and stock performance, providing a clearer picture for investors.
InvestingPro Data indicates a market capitalization of just $2.57 million, reflecting the company's small size in the financial market. This is accompanied by a strikingly low Price / Book multiple of 0.06 for the last twelve months as of Q3 2024, suggesting that the stock is trading at a low valuation compared to the company's book value. Additionally, Netcapital's revenue for the same period stands at $7.72 million, with a gross profit margin of an impressive 98.44%, pointing to the company's ability to maintain profitability on the cost of goods sold.
However, Netcapital's performance has been affected by its inability to generate profits over the last twelve months, as highlighted by one of the InvestingPro Tips. This is further evidenced by a negative P/E ratio of -0.763, indicating that the company has reported a loss per share. Moreover, the stock has experienced a significant decline over various timeframes, with a one-year price total return of -87.66%, underscoring the steep drop in the stock's market price.
Investors considering Netcapital should be aware of these critical metrics and consider the additional 20 InvestingPro Tips available, which provide deeper insights into the company's performance and potential investment strategies. For those looking to access these tips and more detailed analytics, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
In light of the current data, Netcapital's optimistic outlook and strategic initiatives, such as the upcoming launch of its alternative trading system, should be weighed against the backdrop of its recent financial performance and market valuation.
Full transcript - Netcapital NAQ (NCPL) Q3 2024:
Operator: Good morning, everyone, and welcome to the Netcapital Inc. Quarterly Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Coreen Kraysler of Netcapital. Coreen, the floor is yours.
Coreen Kraysler: Thank you so much, Jenny. Good morning, everyone, and thank you for joining Netcapital's Fiscal Third Quarter 2024 Financial Results Conference Call. This is Coreen Kraysler, CFO of Netcapital Inc. I will begin with a review of our financial results. Following that, Netcapital's CEO, Martin Kay, will follow with his prepared remarks before we open the call up for questions. Before we begin, I'd like to call your attention to the customary safe harbor disclosure regarding forward-looking information. Management's discussion may include forward-looking statements. These statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Any forward-looking statements reflect management's current views with respect to operations, results of operations, growth strategy, liquidity and future events. Netcapital assumes no obligation to publicly update or revise these forward-looking statements for any reason or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Turning to our financial results for the third quarter. During the quarter, revenue decreased by approximately $1.2 million or 54%, to $1 million, as compared to $2.3 million during the 3 months ended January 31, 2023. The decrease was primarily attributed to a decrease in revenue for consulting services that we provide in exchange for equity securities during the quarter. In the 3 months ended January 31, 2024, revenues from equity-based contracts decreased by $1.1 million or 56%, to $862,000, as compared to revenues of $1.9 million in the 3 months ended January 31, 2023. A decrease of approximately $52,000 or 23% was also noted in funding portal revenues during the quarter when compared to the prior fiscal quarter. In Q3, we recorded $179,588 in funding portal revenues, consisting of portal fees of $84,548 and listing fees of $95,040, as compared to funding portal revenue of $231,833 in the 3 months ended January 31, 2023, consisting of portal fees of $99,333 and listing fees of $132,500. The decrease in funding portal revenues for the third quarter is primarily attributable to fewer issuers listing to raise capital on the funding portal platform. Funding portal revenues decreased approximately 23% to $179,588, compared to $231,833 in the third quarter of fiscal 2023. We reported diluted earnings per share of a loss of $0.19 in the 3 months ended January 31, 2024, which was down compared to diluted earnings per share of $0.33 for the same period in the prior year. As of January 31, 2024, we had cash and cash equivalents of $2,172,099. I'll now turn the call over to our CEO, Martin Kay.
Martin Kay: Thank you, Coreen. This was a challenging quarter for many businesses trying to raise capital in the current market environment. We had fewer issuers listing on our funding portal during the quarter than in the prior year period. But we remain optimistic about our future prospects. All companies need capital and Netcapital provides an easy-to-use, easy-to-access platform that connects high-quality investors with high-quality companies. We saw both overall revenue and funding portal revenue drop for the quarter but we remain steadfast that we are providing the best service for our clients and that our value proposition continues to resonate with private companies looking for capital and with investors looking for opportunities. While our overall revenue for the first 9 months of fiscal 2024 dipped by approximately 14% compared to the prior year period, funding portal revenues increased by more than 70%. We had an increase in portal fees of $375,683 or 152%, and an increase in listing fees of $48,040 or 14%. The increase in funding portal revenues during the time is primarily attributable to increased offering activity on the platform that generated increased investments by investors who purchased securities on the portal. Another bright point during Q3 was that we closed a $4 million public offering in December, which adds to our working capital and strengthens our balance sheet. We're pleased to see the continued growth in our funding portal revenues and believe it's a testament to the platform itself and the need for it. The platform continues to grow with over 100,000 people using it and with over 50 companies currently raising capital. Moving forward, we plan to continue to scale our platform and to continue catering to accredited and nonaccredited retail investors, early-stage companies and others that need a platform designed to provide a real-time solution that's user-friendly and works 24 hours a day, 7 days a week. The scalability of our platform is a key driver of our business model, allowing us to grow revenues ahead of costs. As always, Netcapital will remain vigilant and dedicated to our shareholders, staff, customers and the investment community. And as always, we want to thank you for your interest and continued support of Netcapital. Operator, we are ready for questions.
Operator: [Operator Instructions] Our first question is coming from Bill Peters of [indiscernible] Investments.
Unidentified Analyst: Do you see the crowd funding market consolidating? It seems so fractured. And if so, would management consider that and use their valuable NASDAQ listing as a potential partner?
Coreen Kraysler: Martin, do you want to handle that?
Martin Kay: Yes. Thanks for that question. Yes, very good question. We certainly agree that it's early -- relatively early in our industry, and we're still relatively small as an industry. I think if you look at the data that's collected by third parties, the equity crowd funding industry is probably around $1 billion, Reg CF and Reg A combined, flowing into private companies. And obviously, that's just a drop in the bucket compared to the overall amount of capital that's flowing into private companies. So we believe that right now, it's very early in the industry. We're still growing, and that there's certainly room for multiple competitors. That said, obviously, like any other company, we're always open to discussions and ways in which we can find opportunities to create value for our shareholders in partnership with others.
Operator: [Operator Instructions] I'm not seeing any further questions come into queue. We have another question just popped up there. And it's from Bill Peters again from [indiscernible] Investments.
Unidentified Analyst: I forgot to mention, where does the company stand with the ATS system, the alternative trading system?
Martin Kay: Again, great question, Bill. It's certainly been a focus for management over this quarter. We are currently in a closed beta, is how we describe that, in a production environment. So we're working with our ATS partner, Templum. We have an invited set of beta users, what was previously in test environment, is now in a production environment. And we expect to be able to launch more broadly in the near future.
Unidentified Analyst: Near future, 6 months from now, is that realistic?
Martin Kay: Yes. Within -- certainly, that's realistic. I would expect -- we would hope to be able to launch sooner than that.
Operator: Well, again, we don't appear to have any further questions in the queue. I can hand back over to the management team for any closing comments.
Coreen Kraysler: Thank you, Jenny, and thank you, everyone, for joining us. And we look forward to speaking to you soon.
Martin Kay: Thanks, everyone.
Operator: Thank you very much, Coreen. This does conclude today's conference call. You may disconnect your phone lines at this time. And have a wonderful day. Thank you for your participation.
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