Small Caps | Feb 23 2016
-Strong HR support for the technology
-Further opportunities in other markets
-Meaningful revenue in next few quarters
By Eva Brocklehurst
1-Page ((1PG)) has potential to become one of the leading technology platforms trying to secure a significant market share in human resources (HR) recruitment in the US. Canaccord Genuity believes a revenue ramp-up is imminent and could be rapid once the conversion of curated pool contracts for the company's Sourcing platform commences.
The broker has confidence in the stock, having undertaken a survey of the company's corporate clients. These businesses range from 3,000 employees to multi-national enterprises, across a range of industries. The feedback suggests multiple technology platform providers have a chance to secure a share of a very large industry. The market opportunity is estimated to be US$23-34bn in the US.
In essence, HR personnel are looking for technology to provide a means to finding the right person for a job, and filling it quickly. A number of respondents also suggested 1-Page has a strong database, good data integrity and provides a broader range of candidates than many other systems.
1-Page is being mentioned, the broker observes, in the same vein as existing and emerging platforms such as LinkedIn, Indeed, Glassdoor and Connectifier (now owned by LinkedIn). The company has a database of over 1.2bn people and a tailored offering that narrows down into niche jobs and functions.
While the proprietary master database is being monetised through the HR market and the Sourcing platform, the broker believes there could be further opportunities for 1-Page through alternatives such as marketing, advertising and demographic applications. These opportunities are not included in the broker’s base case scenario.
The company operates on a January fiscal year and the broker expects an update regarding customer numbers at the end of February. Actual revenue and cash flow is expected to remain low as meaningful contracts appear to have only ramped up in the fourth quarter and payment terms are, on average, 60-90 days.
Canaccord Genuity initiates coverage on the stock with a Speculative Buy rating and $4.70 target, which represents 85% upside to the current share price. This is a global initiation as the broker's Australian arm launched regional coverage in August last year.
The broker note US enterprises have been receptive to 1-Page products, with over 300 companies in the active sales pipeline. The company expects 30 contracted paying clients by the end of FY16. 1-Page seeks to monetise customers immediately, charging to trial or set up the curated talent pool, rather than making user growth a priority.
The company is based in California and uses its BranchOut business, acquired in 2014, to formulate a proprietary database. The sourcing service based on this asset is disruptive and beneficial to HR managers and also difficult to easily or affordably replicate. BranchOut uses 820m profiles built within the Facebook platform.
The outcome is a database of candidates for difficult-to-source jobs at an affordable cost. The broker points out that the company does not “scrape” data but only uses publicly available data.
Canaccord Genuity understands that the recent partnerships 1-Page has engaged have gained significant traction in the last few months and should start delivering meaningful revenue in the next couple of quarters. The broker expects 1-Page to generate over 95% of its revenue in the short term through the Sourcing platform but there are two others, Innovation and Assessment which the company is also commercialising.
The Assessment platform provides an automated mechanism for assessing candidates and Canaccord Genuity forecasts revenue to grow to $1.2m in FY17. The Innovation platform aims to facilitate innovation within large corporations by providing a forum for staff to offer ideas and track the success of these initiatives. The revenue stream is expected to increase to $800,000 in FY17.
1-Page's estimated operating cash flow in FY16 is $10.6m and the company has suggested a 60% reinvestment rate based on revenue growth of 100% per annum in the short term. Canaccord Genuity considers this reinvestment important to further growth, but notes the low costs in the business which provide leverage to the capital deployed. Positive free cash flow should be in evidence by FY17, the broker maintains.
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