Boku reported 39% year-on-year revenue growth in H1: 19% growth from the Payments business was boosted by the newly acquired Identity business. This translated to 69% growth in EBITDA and 64% growth in normalised operating profit, despite investment in the Identity business. Management expects a stronger H2 and is maintaining FY19 guidance. We have taken a more cautious approach to our Identity forecasts reflecting longer sales cycles; this reduces our FY19–21 forecasts, although we expect the company to meet FY19 guidance.
H119 revenues came in higher than previously flagged in July’s trading update, growing 39% y-o-y to $23.5m. While this growth was impressive, management pointed to several factors (timing of games releases, currency, pace of build out of international connections in the Identity business) that acted as headwinds in the period. EBITDA was 69% higher at $4.3m (18.2% margin) and normalised operating profit grew 64% y-o-y to $3.0m. Payments revenues were 19% higher y-o-y, resulting in EBITDA of $6.6m (+161% y-o-y). The Identity business saw proforma revenue growth of 36% and generated an EBITDA loss of $2.4m.
Boku maintained guidance for FY19, pointing to the strength of its pipeline, seasonality, expected games releases and positive momentum in the Identity business as supportive of H2 growth. As we think the company is now more likely to meet than beat guidance, we have revised our forecasts to the middle of the guidance range for FY19. We have also reduced our Identity revenue and EBITDA forecasts for FY20 and FY21, reflecting the lengthy sales cycles involved in signing up major merchants and mobile operators.
On an EV/EBITDA and P/E basis, Boku is trading at a discount to peers on FY20 and FY21 estimates. Boku’s strong cash generation is reflected in its aboveaverage free cash flow yield for FY20 and FY21. Confirmation of contract extensions and new merchants for the Identity business as well as evidence of a growing contribution from mobile wallets in the Payments business could help to close the discount to peers.