Shares in wealth management app Douugh (ASX: DOU) have been rolled down to record lows today after the Sydney-based fintech announced a $5 million loss and watered down revenue in the December half due to the pull-out from its cornerstone US market and the collapse of its Banking-as-a-Service (BaaS) provider Volt.
At the market close yesterday Douugh's share price was already sitting at a third of its 2020 IPO listing price of 3cps, and was 30 times lower than the highs achieved in November of that year, but today's result sent it down another 20 per cent in morning trading to $0.008.
In December the company quietly announced it was in the process of winding down its US banking subsidiary, after highlighting in its FY22 results that it had "pivoted its resource focus away from the US to concentrate on the upcoming launch into Australia", whittling down marketing spend in that "expensive" market across the Pacific whose users had "materially generated" the $588,364 in revenue that year.
This represented a leap from just $34,081 in FY21.
Despite this momentum and the accumulation of capital raises and R&D grants - for a company that in 1H23 spent around 8 per cent of its market capitalisation on R&D or around half its net asset balance by the end of the calendar year - the concession was made that to achieve its goals in North America, Douugh needed more capital which was not forthcoming.
Meanwhile, all the work the Douugh team had put into integrating their software with Volt Bank was nullified by the partner's downfall.
Douugh CEO and founder Andy Taylor said additional steps were taken in the December half to reduce the fintech's burn rate and extend its cash runway, while building out the Australian service and learning lessons from experience with the US offering and in-depth consumer research.
"The dramatic decline in market conditions in 2022 and subsequent share price performance meant that we were unable to access the level of capital required to compete in the US and continue to build on the strong initial momentum we had experienced, [sic] this was compounded by the rising cost to operate thanks to the declining value of the AUD against the USD," Taylor said in an announcement published after the market closed yesterday.
"The difficult but logical decision to withdraw from the US was therefore made to allow us to exclusively focus our attention and resources on our home market of Australia, which requires a lot less investment in order to reach profitability.
"Unfortunately the closure of our BaaS provider Volt Bank, having already completed onboarding and integration work, meant we had to re-architect the platform in order to roll out in stages in Australia, with the first phase having now gone live and the second phase ontrack [sic] to go live in Q4 FY23."
Investors responded negatively to these announcements today despite Taylor's positivity for Douugh's outlook.
"Whilst 2022 will go down as one of the most challenging years in our history, we have never been so excited and optimistic about the future. Our ability to compete and scale the business off the back of the launch of our reimagined card & account product cannot be understated," he said.
"We have invested significantly into R&D to build a comprehensive technology stack of material value that is unique in terms of integrating banking & investing services into a single money management platform.
"We believe we are in the best position to maximise the revenue opportunity in front of us."
First half revenue was down 29 per cent at $136,861, with net assets at 31 December 2022 of $1.3 million.
As has been the case ever since the FY21 annual report, the directors took note of a "material uncertainty" that could cast significant doubt as to whether Douugh could continue as a going concern, and whether it would realise its assets and extinguish its liabilities in the normal course of business at the amounts stated in the financial report.
However, based on several factors including cash on hand of $3.3 million at the end of the period, an equity facility agreement of up to $20 million on call based on certain conditions, reduced cash requirements due to the US market exit, a successful track record of raising equity or debt funding, and the launch of the Douugh platform in Australia, led the directors to conclude it was "reasonably foreseeable" that the business could continue as a going concern.
In Douugh's August 2020 prospectus the existing and incoming directors at the time noted it would not be possible to forecast performance, which in any period would be "influenced by various factors that are outside their control". In that moment the company, having been founded in 2017, was earning most of its revenue from debit card interchange transaction fees and the acquisition of brokered deposits sourced from partner banks.
The company stated that an increase in revenue generation would require greater use of Douugh products by customers and for Douugh to continue to increase numbers of registered users, with customer adoption featuring as one of the investment risks flagged in the prospectus, which itself do not include an audit but rather "limited assurance conclusions" from Armada Audit and Assurance Pty Ltd.
Prior to listing, Douugh had negative net assets of $516,257 - compared to $1.3 million at the end of 2022 - and cash levels of $369,846, which were lifted to $7.32 million after the IPO.
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