Shares in payment processing firm Bango could be about to pop as it reaches profitability and operational gearing kicks in, writes James Faulkner.
Readers who have followed my work on other websites may remember that I recommended shares in Bango (LON:BGO) way back in 2011 at 76.5p. Since then, the shares have been on a rollercoaster ride, having been as high as 280p in 2013, before falling back to 40p in 2016, only to bounce back to 270p in 2017. The current price is 124p, and the shares look set for another bounce – but this time they might just stay higher for good.
Historically, Bango has been focused on Mobile Payments as its main area of operation, while this also provides the platform for its other main offering, mobile analytics. Bango’s proprietary payments technology allows mobile content providers (app stores, for example) to collect payment for online content downloaded to mobile phones. The aim is to add value to the payment chain by giving vendors the highest level of payment conversions.
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Whilst carrier billing remains a core pillar of the Bango business and continues to grow – End User Spend (EUS) increased 106% to £558.2m in 2018 and is forecast to more than double again in 2019 – the launch of a new product looks set to open up an entirely new and potentially highly lucrative market for Bango and its customers.
Early in 2018 Bango acquired Audiens, gaining valuable technology and its important business relationships with trusted marketing partners Google, Facebook, Oath and other global marketing businesses. Along with product development at Bango, this enabled Bango to open the unique capabilities of the Bango Platform to an entirely new range of customers. App developers can now focus their campaigns towards audiences that have specific payment histories or characteristics. In addition to using Bango to process their payments, Bango makes marketing more efficient and effective for app developers.
In December 2018 Bango launched Bango Marketplace, an online portal at bango.com which makes the value of Bango generated audiences more easily available to app developers. This represents a major market opportunity for Bango, with worldwide app advertising spending forecast to grow from $27 billion in 2017 to $64 billion in 2020 (source: AppsFlyer).
The beauty of this model is that it leverages Bango’s existing relationships with MNOs (mobile network operators) and is a win-win situation for all involved. The MNO provides the user data to Bango for a fee (I should stress here that all data is opted-in and regulatory-compliant), thereby generating incremental revenues from its existing user base. Bango then anonymises the data and creates segments for app developers’ use. The app developer pays Bango a fee for access to this audience on a time-limited basis and Bango provides campaign metrics based on payment performance.
The early evidence suggests that Bango Marketplace is highly effective. In pre-launch tests in US and Asia, developers were able to generate more than 2x the number of paying users from their campaigns by using customer segments from Bango Marketplace, compared to marketing without Bango. Given that app developers spend up to half their budget on marketing, this suggests that Bango Marketplace could be a very valuable product indeed.
Bango Marketplace is the icing on the cake for a business that is already moving into profitability – The payment business moved into profitability in 4Q18, and “transaction volumes continued to accelerate”. Moreover, “With the growing high margin revenues and stable expenses of its payment platform, Bango expects to generate sufficient cash to cover both the operational costs of the business and this continued investment in product development in the coming year.”
Indeed, Bango now appears to be at an inflection point, as the carrier billing platform approaches critical mass while costs remain firmly under control – admin costs grew to £6.7 million in 2018 from £5.7m in 2017. Operational gearing looks set to work its magic here, with Bango stating that its platform “can process EUS at many times current levels with no additional operational cost.”
My instincts are that Bango shares won’t remain at current levels for much longer, and with the payment sector consolidating rapidly, we shouldn’t rule out the possibility of a bid. Interesting times are ahead for Bango holders.