Bango’s CFO and CEO toured London met with investors and analysts who were unable to attend our open session on 9th June 2009. Notes were taken during the Q&A session, and a summary is provided below. Please read in conjunction with the prelims document: http://bangoinvestor.files.wordpress.com/2008/05/bgo-fye-march-2009-prelims-final.pdf
and the presentation: http://bangoinvestor.files.wordpress.com/2008/04/bgo_prelims-jun09-final.pdf
Q: In a nutshell, what does Bango do?
A: Bango is the leading provider of payment and analytics products for businesses targeting the fast growing market of internet enabled mobile phone users.
Q: What are SMS aggregators and how do they relate to this market?
A: SMS aggregators simplify the technical and commercial problems encountered when sending SMS messages though mobile operators to mobile phone users. Some operators allow “premium messages” to be sent, which can cause the user to be billed. These premium messages can be used as a billing mechanism, although there is a move away from this technique as it is open to abuse and does not fit well into an internet model. Bango uses SMS aggregators to send user help messages if appropriate and uses Premium SMS billing in cases where no better alternative exists.
Q: Use of mobile internet seems to be starting to take off, benefitting Bango and your customers. What happened to make it do do?
A: Bango believes the upsurge in usage is based on three factors:
(a) Applications: Facebook, twitter, bbc-news, google maps, ebay and many others have now optimized their web sites to mobile phone browsers and they are really popular when people are away from a PC
(b) Browsability: Mobile browsers now work acceptably well. Phones have larger screens, faster connection speeds, touch control and are easier to use for browsing.
(c) Cost: Competition has driven down the cost of internet access dramatically. “All you can eat” rates of around $5-$10 a month available to most users, and low cost on pay as you go.
Q: Is the iPhone helping Bango?
A: Yes. The direct effect is that website owners wanting to sell to iPhone users without going through Apple’s “storefront” are using Bango services. They are also tracking iPhone users with Bango analytics. The indirect effect is to stimulate Nokia, Samsung, LG, RIM, Ericsson and the other large handset makers to make their product easier to use, which will help the market grow. In addition, sites that are adapted to the iPhone browser are much easier to adapt to the mass market mobile device so more mobile optimized sites are being developed.
Q: What is the Bango view on “Application Stores”?
A: They are a useful stepping stone in the move towards a more open, web model. Longer term, the mobile market place will evolve in the way we saw the traditional web evolve – with a wide range of channels to market and a diverse selection of business models.
See also: http://mobilesoapbox.wordpress.com/2008/08/18/apple-iphone-software-store-generating-sales/
Q: Who do you see as your main competitors?
A: Bango’s biggest short term opportunity is to enable sites using P-SMS or traditional operator billing to make more sales and profit by moving to Bango, so their legacy suppliers or in-house developers are often “competition”. For Bango payment products, the alternative of giving away products or services for freeand finding some other way of making money – such as ad-funded or selling user details to direct marketers - is also “competition”.
Q: Do you compete with Paypal?
A: The Paypal “Mobile Checkout” system can be used from mobile devices but has a success rate of below 1%, which is significantly lower than either credit card payment or mobile operator billing. Bango is integrated with Paypal and uses it where it is the best payment method for that particular transaction. As a result, while Paypal has been in the mobile web payment market for 3 years as a potential competitor it has won very few customers.
Q: What is Bango’s market share?
A: Bango estimates that we are the market share leaders in the USA and UK. (Our share of the “off-portal” click to buy mobile web payment market is 90% in the USA. And about 30% in the UK.) We are also leaders in SPain and Germany but these markets are still at a very early stage.
Q: Can you explain the movements in overall gross profit?
A: We expect fee revenues to increase based on increasing numbers of customer sign-ups and the increasing use of Bango Analytics. As you can see in the presentation, the price reductions over the last year initially caused a reduction in the revenue from fees as existing customers paid less, but then in the second half of FYE March 07, the overall revenues increased as new customer wins exceeded existing customers benefitting from price reductions.
We expect increasing end user spending, driving an increase in gross profit from this source. The overall mix will be affected by the relative speed of growth between these different profit sources. That’s why we report on our progress with both sources of margin separately.
A: Firstly, we believe that there is room for increasing our effective percentage margins on the existing transaction volumes, without impacting our content providers. Thats because we expect mobile operators will pay us for the valuable task of looking after an increasing number of content providers and providing analysis of their traffic, and also for bringing in business – for example for Wifi connected customers – that they cannot otherwise reach. Second, whether we bring on transactions from smaller sites at margins of 5-8% or from very large customers at a 1-4% margin, we are adding incremental profit margin. Third, we are seeing increasing margin from our analytics products which is additive to the profit margin from payment products.
Q: Will you need to invest in extra capacity as your transaction volumes grow?
A: Yes. We continue to invest in server capacity and data-centre connectivity to ensure we the ability to handle peaks in traffic and overall traffic growth. The unit cost of connectivity, processing power and storage continues to reduce and in addition our development team innovate in ways to structure and store data to ensure that capex requirements remain low.
Q: How do you deal with privacy and security?
A: Security of our customer’s data and the privacy of end users are critical to our business. We track industry requirements and achieve high levels of audited security. We recently appointed Tim Moss, who has a great deal of experience in these areas as “Chief Data Officer”.
Q: How much would a mobile operator billing connection cost to implement?
A: A typical new MNO billing connection costs Bango about 4-6 weeks technical effort and a few weeks of commercial work to ensure the right banking relationships etc. If a content provider or a mobile operator wanted us to do the work for a specific reason, we would expect to do this for a fee in the region of £25-50,000 with a small monthly maintenance fee.
Q: Will you generate a lot of cash as your business grows.
A: Cash is generated as the revenues collected from users arrive a few days before they are paid out to
content providers, so rapid end user spending growth would generate cash. However, our policy is to
pass cash from billers to our content providers quickly so that they can invest in their marketing and
products, so it is not our objective to “hold on” to cash flowing to content providers.
Q:What is an R&D tax credit
A: The UK Government offers tax credits is to encourage greater R&D spending in order to promote investment in innovation. Research and development (R&D) tax credits are a company tax relief which can either reduce a company’s tax bill or, for some small or medium sized companies, provide a cash sum. As a UK company, with R&D projects that extend overall knowledge or capability in science and technology, the company received a cash sum, which is applied below the “profit/loss before tax” line in the P&L on slide 10. Full information is available at http://www.hmrc.gov.uk/randd/