Mogo’s third quarter was better than expected, Mackie Research says

Third quarter results from Mogo Finance Technology (TSX, NASDAQ:MOGO) came in better than expected, according to Nikhil Thadani of Mackie Research Corporation, who calls the results proof positive of the fintech company’s successful pivot to a capital-light revenue model.

Mogo’s Q3 results were announced on Wednesday, featuring total revenue of $15.4-million, a record for the company and a 23 per cent improvement on a year ago. That came with an Adjusted EBITDA of $1.0-million, the company’s ninth quarter in a row of positive Adjusted EBITDA.

Over the quarter, Mogo completed a move away from short-term lending, a segment that as recently as April 2017 comprised half of the company’s revenue. But the transition didn’t prevent Mogo’s top line from growing, said President and CFO Greg Feller.

“It was another very strong quarter financially for Mogo, as total revenue increased by 23 per cent, despite exiting the short-term lending business this quarter as planned,” said Feller in a press release . “The true strength of our results is reflected in core revenue growth of 80 per cent – accelerating from 64 per cent in Q2 – which was again led by subscription and services revenue growth of 111 per cent based on our continued success with MogoProtect and our premium subscription services. This high-margin revenue stream is now at a quarterly run rate of almost $8 million and represents more than 50 per cent of our total revenue. Our growing ecosystem of products also enabled us to increase the rate at which we are monetizing our member base, which drove a 23 per cent increase in our Core average revenue per member.”

Thadani says over the third quarter Mogo’s revenue grew faster than expected, beating his $13.9 million estimate, while the Adjusted EBITDA of $1.0 million also beat his break-even estimate of $0.0 million.

“More important than the headline revenue beat, in our view, Mogo reported Core Revenue (total revenue less short term loan revenue) of ~$15 million versus our estimate of ~$13.6 million, implying year-over-year growth of ~80 per cent versus our expectation of ~60 per cent,” says Thadani in a research update on Thursday.

“While no specific announcements were made yesterday, we believe Mogo’s new product and potential partnership strategy appears to have expanded in scope since Q2 results in August,” he says. “Specifically, the company’s product funnel appears to include possible wealth management products and cash back on pre-paid cards. Potential partners could include banks, insurance companies & credit unions.”

“We believe potential announcements in this regard could be positive catalysts for the stock, as they would further expand Mogo’s reach as a mobile first direct to consumer channel & meaningfully drive customer engagement leading to higher subscription and services revenue growth,” he says.

Thadani maintains his “Speculative Buy” rating and $12.00 target for Mogo, implying a projected 12-month return of 233 per cent at the time of publication.

Disclosure: Mogo is an annual sponsor of Cantech Letter.