More on Tungsten/OB10

I’ve written previously about my fascination with the e-invoice and supply chain finance markets, as well as Tungsten/OB10.  Now that Tungsten has acquired OB10 and gone public, we have front-row seats at the grand experiment (£225 million to be exact) Tungsten is running in e-invoicing, analytics, and supply chain finance.

In their financial report for the six months ended 10/31/13, I noted several interesting disclosures:

• The OB10 network processed an impressive £109.2 billion in invoices for the year ended December 31, 2013, up 12% from the prior year.  This comprised 13.3 million invoices, up 14% over the prior year.
• The OB10 network has 127 large corporate and governmental buyers
• Most important, Tungsten reported that had OB10 been a subsidiary for the entire six month reporting period, OB10 would have reported revenues of £9.5 and an EBITDA loss of £1.1.

My interpretation of these facts is:

• OB10’s revenue amounts about 2 basis points (bps) for every dollar of invoice value. This “gross yield” seems very low.  A low yield is acceptable as a strategy to buy growth, but 12-14% growth is not the kind of growth that SaaS investors dream about and invest in!
• Given this yield, if total spend on the OB10 network grows by the same amount every year as it did last year (about $10 billion/yr),  OB10 will grow by just £2 million per year.
• Approximately £900 million in invoice volume per client is impressive

The bottom line is that OB10 seems to do a good job penetrating their customers, but they are going to need to:

• add customers at a much faster rate (not easy in enterprise sales),
• increase prices (to increase “yield”),
• and/or dramatically increase yield through cross-selling supply chain finance

to keep up with the lofty expectations of the SaaS-loving public markets.

To that end, OB10 announced it would integrate its e-invoice network with the accounts payable solution of a top 10 US Bank and that Blackstone will provide up to $200 million in equity to underpin a financing vehicle run by Tungsten.  OB10 also reported progress on its analytics offering and continuing discussions regarding its acquisition of a bank.

The stock reacted well to the news hitting an all-time high.  I’m assuming the market loves the supply chain finance story and the possibility it holds for dramatically increasing yield.