The impact of AI

Mar 01, 2024

∙ Paid

Hi Partner 👋

I’m Pieter and welcome to a 🔒 subscriber-only edition 🔒 of Compounding Quality.

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Yesterday, Text SA published its results.

But what impact does Artificial Intelligence have on their business?

Let’s summarize everything and update our investment case.

Text SA

Text SA is a Software as a Service (SaaS) company. Almost all its revenue is recurring in nature.

The company manages text communication with customers in business-to-consumer (B2C) and business-to-business (B2B) sectors.

For those interested, you can read the full investment case here:

Financials third quarter 2023/2024
- Revenue increased by +3.9% (+17.8% in USD) and net profit decreased by 7.1% due to unfavorable exchange rate changes
- Net cash from operating activities amounted to PLN 134.7 million
- Text SA generates virtually all of its revenues in dollars, and the weakening of the USD hurt the dynamics of results
  - We don’t try to predict FX movements
  - A time will come when the USD/PLN evolves in our favor
Financials first 9 months 2023/2024
- Revenue grew by +19.3% and net profit grew by +16.7%

Revenue per product
- ChatBot is becoming more important (this segment benefits from AI)

Monthly Recurring Revenue (MRR)
- MRR is by far the most important metric for Text SA
- MRR remained stable since Text SA increased its prices by roughly 25%
- Text SA should grow its MRR again to do well as an investment
  - Due to the cheap valuation level of Text SA (see later), I think Text SA’s stock price can spike when they report MRR growth again

Recently, I talked with Shreekkanth Viswanathan, founder of SVN Capital, about Text SA’s moat.

Is the moat of Text SA as wide as we initially thought?