Kape has issued a trading update which confirms a strong finish to 2018, with Adjusted EBITDA likely to be slightly above consensus at U$10.4 million – up around 25% on the prior year. Revenues were U$56.4 million, down as expected on the prior year after the sale of the Media business. The Group ended the year with cash of U$40.3 million. We adjust our FY 2018E estimates to reflect these numbers which means that our revenue estimate reduces by 8% while Adjusted EBITDA increases by 2%. For FY 2019E, we leave estimates unchanged given the momentum in the business and await further detail in the March final results announcement. The proportion of subscription revenue has increased again, as the Group continues to transition customers while customer retention has improved further. Over the year, the Group’s subscriber base increased by 219% to c. 830,000 users. In line with November’s update on Intego and ZenMate, the integration of both acquired businesses is progressing ahead of management expectations and management continues to expect the benefits of the implementation of Kape’s user acquisition capabilities to be realised in 2019. In all, this is a very encouraging update with progress on user acquisition particularly of note.
Revenues for the App Distribution business are anticipated to be U$52.1 million (2017: U$48.2 million), showing growth of 8%. The announcement states that profitability and margins continue to improve due to the switch to a recurring revenue-based model.
The process of transitioning customers to subscriptions has continued apace, with revenue generated from existing users at the end of 2018 anticipated to be U$30 million in future periods compared to U$18 million at the end of June 2018. Pleasingly, customer retention is around 74% for the year (2017: 69%).
The increase in the subscriber base noted above is impressive and suggests further improvement at CyberGhost on top of the users associated with the second half acquisitions, with 830,000 users as at December 2018 compared to 561,000 in June 2018. At the time of acquisition, ZenMate had around 50,000 SaaS-based premium consumers while Intego had 150,000 paying users.
Kape had previously announced the launch of cross-promotion campaigns between CyberGhost's Virtual Private Network and Intego's Malware protection software, noting early signs of strong traction and anticipation of ‘seeing benefits to the business in the current year’.