Thread by @JCVpartners

$FREEE $4478 – Why we like it

1/ Freee is the leader in cloud accounting software in Japan. It is easy for customers to use, allows significant time savings, and makes compliance with government regulations easier. Think the Japanese version of $XRO or $INTU

2/ $Freee is particularly popular with smaller companies and self-employed. Its software is pitched at people who are new to accounting. It has an attractive user interface that reduces the need to manually input data (those dreaded expense receipts)

3/ $Freee has tied up with a network of accounting firms in Japan. This partner network helps to reach thousands of smaller businesses. The company also has a great website where you can directly sign up.

4/ The company sees a huge market opportunity worth over $6bn for its accounting software. We believe that all accounting will transition to the cloud eventually. There are 1.5m small businesses and 4.5m self-employed people in Japan. Freee currently has 245,000 customers.

5/ The market penetration of cloud accounting in #Japan is around 14% versus 61% in Australia.

6/ Key competitors for cloud-accounting: Money Forward, Obic Bugyo, Orix Yayoi. There are no foreign players in the market and they don’t seem to be planning on entering any time soon.

7/ Key Highlights:
Annual Recurring Revenue $85m
Revenue growth MRQ 51%
Customer acquisition: +36%
Subscription rate: 90%
ARPU: $28/month
Gross margin 79%
LTM Churn: 1.6%

8/ $Freee was founded by Daisuke Sasaki (CEO) and Ryu Yokoji (CTO). Insiders own a 33% stake in the company and are well aligned with minority shareholders. It is well-liked by institutional investors.

9/ $4478 is up 245% over the past year. At ¥9,990, the stock is 23% below its 52-week high.
The company’s market cap is $4.5b. We estimate the company is trading at NTM EV/REVENUE of 36x – a premium multiple for a premium opportunity.

10/ RISKS? The key risk is competition. There are high barriers to entry, particularly for foreign entrants given the investment in local compliance and high number of end users required to become economic. Weaker JP player could become a target for global major.

#dadjokes