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cloudBuy's keener focus on revenue generation showing through

Last updated: 06:52 16 Feb 2017 EST, First published: 06:52 16 Aug 2017 EDT

Hospital ward
PHBchoices.co.uk is a secure web-based care marketplace that enables patients to purchase goods and services from suppliers that support their care plan

CloudBuy PLC (LON:CBUY), the developer of online marketplaces, has learnt some hard lessons irecently.

Mainly, it has got a better handle on what deals are worth chasing, and which deals should get the barge pole treatment.

The focus now is on projects that have a larger upfront fee, as this mitigates the risk for cloudBuy and provides a larger incentive for the customer to continue through to the transaction revenue phase.

WATCH: "We've learned a lot of hard lessons", says CloudBuy boss ...

This strategy proved effective in 2017 with the loss before interest, tax, depreciation and amortisation (LBITDA) last year was around half the level of the year before.

While revenue for 2017 was expected to be below market expectations, cost reduction measures mean LBITDA will be broadly in line with market forecasts.

Year-end cash is expected to be around £2.5mln following the cash injection of £1.7mln from Roberto Sella in December.

Signs of genuine progress

cloudBuy is a business-to-business software company that provides e-commerce web sites, online marketplaces and cloud-based sales and purchasing solutions.

You can think of it, if you like, as a creator of specialised versions of the well-known Amazon.com and eBay sites. In essence, it builds electronic marketplaces that connect buyers & sellers.

Sellers can list their company and reach new customers for their products and services, while buyers can shop around to source new products and services.

The firm is best known for providing e-commerce solutions, but the company's cloud-based applications are also used for company spend analysis, content management and big data.

Looking at the company’s web site, it is apparent that it has a strong presence in the local government and healthcare markets – both sectors that have large budgets and which do a lot of procurement.

Among the case studies listed are Devon County Council, Hampshire Hospitals, Higher Education Funding Council for England and East Renfrewshire County Council, all of which speaks of a company that is a trusted partner.

The flagship project in the UK is the PHBChoices marketplace, which enables patients, or their carers, to purchase goods and services from suppliers that support their care plan agreed with their Clinical Commissioning Group (CCG).

PHBChoices “remains our main focus for growth, supplemented by contracts already won around the world and a limited number of new opportunities including in the Middle East,” said executive chairman, Ronald Duncan, in the company's 2017 interim results statement.

Opportunity for overseas growth

The customer list also gives the impression that the company is UK-focused, when in fact it has recently been making a big push to establish itself in the Asia-Pacific region, where the market opportunity is huge.

Late in 2016, it signed a deal with Asian bank United Overseas Bank (UOB) that could signal future progress on the road to profitability.

The contract was for five years and will see cloudBuy’s technology powering a new online marketplace for UOB customers, providing a secure but user-friendly environment for business-to-business (B2B) transactions.

Lyn Duncan, cloudBuy’s chief executive officer, said: “The fact that cloudBuy solutions have PCI DSS Level 1 payment security accreditation, the highest level used in the payments industry, is really important to provide a trustworthy environment for buyers and sellers to come together. This is a model that will be attractive to other banks globally."

Meanwhile, the CII marketplace in India has continued to develop with circa 40,000 products featured and available for purchase. To support the ongoing roll out of the marketplace in India, Microsoft has partnered with cloudBuy to integrate its two new apps into the cloudBuy product suite, allowing suppliers in rural areas to manage content on the CII marketplace and their own web sites, with low broadband connectivity from their mobile phones.

The company also has a foothold in North America, where it is working on a project with the York District School Board in Ontario.

Like almost all software companies these days, the name of the game is achieving recurring revenue and chief financial officer David Gibbon is on record as saying the focus will be on generating revenue from existing projects on a recurring basis and on closing new deals that will have a combination of project and recurring revenue.

Strong backing from USA investor, Robert Sella

Although the company is currently loss-making, USA investor Roberto Sella, a former managing director at Morgan Stanley, and his affiliates are obviously believers in cloudBuy.

Sella, the managing member of LL Funds LLC, which has US$1.5bn under management, subscribed for 5mln cloudBuy shares in 2015 at 20p each, spending a total of £1mln.

In December 2017, he agreed to subscribe for up to £3.4mln worth of convertible secured loan notes. Under the terms of the deal, the US-based investor will also have the right to appoint up to 40% of the total number of directors on the board.

The key element that will determine whether Sella sees a profit on his investment is whether cloudBuy can get the top line heading north.

The decision to withdraw from certain markets has lessened the need for sales and marketing resources and has thus reduced the cost base, but cost-cutting can only get you so far; cloudBuy needs contract wins.

“The medium to long-term outlook is positive based on the lower cost and more effective operating model,“ executive chairman Ronald Duncan believes.

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on 08/06/2015