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Mogo Inc. (MOGO) Stock Analysis

Updated: Feb 3, 2020

Current price: $2.60


Market cap: 71.08M


Overall assessment: BUY

This stock price may go down to pennies or may increase by 10-20 times in the next few years. If you are ready to risk a small portion of your portfolio (3-5%) this is a good opportunity.

Why did it pique my interest?


  1. MOGO is a tiny, but disruptive tech company in the financial sector trying to innovate with its products in the Canadian financial industry.

  2. MOGO is tiny, with a $70.8 million market cap. While the chances of them failing are high if they do succeed, we can see price increase fast.

  3. MOGO is continuously innovating in terms of its products mostly delivered through a mobile app.

  4. The recent bullish article “Mogo: Strategy Pivot Should Reap Benefits.” Source: https://seekingalpha.com/article/4318016-mogo-strategy-pivot-should-reap-benefits

  5. Zacks Small-Caps Research from Nov 11, 2019, suggests that the price for MOGO should be $8.6 which is 3 times higher the current price.

Source:

or full report here:


However, please note while the company is focusing on growing revenue, sales and share of the market, its sales for Q3’19 were just $16M. It is also not profitable and is not expected to get to profit in the next couple of years. Lastly, with its plans to grow, it is likely to keep looking for additional financing of its operations through the issue of additional stock.

The hope for Mogo Inc. is to grow a bit, prove they can generate revenue and profit. After that, it is likely going to be acquired by one of the big 6 banks in Canada.



Overview: company, category description


Mogo Inc. operates as a financial technology company in Canada. The company offers financial health app that empowers consumers with solutions to help them manage and control finances. It offers users a free MogoAccount and provides access to six products, including free credit score monitoring, identity fraud protection, digital spending account with Platinum Prepaid Visa Card, digital mortgage experience, the MogoCrypto account, a product within MogoWealth that enables the buying and selling of bitcoin, and access to smart consumer credit products through MogoMoney. The company's platform delivers a digital experience with financial products all through one account. It has approximately 800,000 members. The company was formerly known as Mogo Finance Technology Inc. and changed its name to Mogo Inc. in June 2019. Mogo Inc. was founded in 2003 and is headquartered in Vancouver, Canada.


Mogo Inc. had its IPO on the Toronto exchange in October 2015 and listed on NASDAQ in April of 2018. It has over 250 employees in four locations in Canada. The company currently has over 925,000 users of its app, of which 10% use a feature in addition to free credit score monitoring that generates revenue for the company. The company has two reporting segments subscription and services and consumer loan interest (MogoMoney.) In 2018, the company generated $26.8 million (44%) from subscriptions and services, $26.4 million (43%) from consumer loan interest and $8.1 million or 13% from its discontinued payday loan business. Although the company makes money on all its subscriptions and services products, the company gives away its app, and all its services to consumers, except for real-time identity monitoring and protection, for which it charges $8.99 per month. The company has been growing its member base rapidly and steadily, as shown in the following graph.


MOGO is tiny, with a market cap of only $70.8 million. Q3’19 sales were just $16M. However, it is growing its member base rapidly with 925,000 members in Q3 2019.

The biggest issue and opportunity for MOGO are that most of those members use MOGO app for free as the core of the app functionalities offered for free are:

  1. Monitor and Protect your Finances – tracking your financial health, get credit score from Equifax every month for free, and get tips on improving both

  2. MOGO Card and MOGO Credit (Control Your Spending) – Using Mogo as a means of payment, earning 1 to 3% cashback + it can act as a Visa card. I believe this one is still to come.


The key to MOGO’s success is to move a bigger chunk of those free members to buy/subscribe to their revenue-generating services:

  1. Real-time identity monitoring and protection, for which it charges $8.99 per month.

  2. Getting loans from MOGO, which are approved very quickly.

  3. MOGO Wealth - Using MOGO investment capabilities (still to come).

It seems MOGO’s management is preoccupied with solving this problem through partnerships.

MOGO app seems to be quite useful, with 4.4 stars on Google Apps (1,942 reviews). App Store has 4.2 stars (1.2K ratings)



Financial overview


MOGO grows revenue every quarter; however, in 2019, revenue growth was just 9%. Zacks.com estimates revenue to grow by 22% in 2020. We would like to see stronger growth. With the estimated 22% growth in revenue, MOGO will stay in red for profit and EPS.


As the company is in negative on profit it is burning cash:


Also, as you can see from the balance sheet, current liabilities are quite high for cash at hand. However, loans receivable will cover that. So, the quick ratio is 1.31 which is good (the good ratio is 1 or higher). The company has a lot of long-term liabilities. The debt to equity ratio is 18, which is very high (the good ratio is 1 to 1.5).


On a good note, the company is growing its EBITDA. EBITDA gives a good idea of how the company is doing financially and portrays how much cash a young company generates before paying its debts. EBITDA can also be used to analyze and compare profitability among its peers as it eliminates the effects of accounting and financial decisions.



Key financial ratings/Stock Value


With negative EPS, it is hard to calculate the value of the stock. However, it is growing EPS slowly. Hopefully, in a couple of years, it will hit the positive side. For now, we cannot use projected EPS to value the company.


The current estimated EBITDA for 2019 for the MOGO is $6,43M. Sometimes EBITDA is used in combination with EV (Enterprise Value) to value the company using a multiplier.

Enterprise value is calculated as the market capitalization plus debt, minority interest, and preferred shares, minus total cash and cash equivalents.

In our case EV is $70.8M market cap + $151.78M debt - $35.4M cash & investments = $187.2M

In our case enterprise value/EBITDA multiple is $187.2/$6.43 = 29. As a general guideline, an EV/EBITDA value below 10 is commonly interpreted as healthy. In our case, based on my calculations, the multiple is too high.


The estimates from analysts state that next year MOGO is unlikely to get to profit. However, I am bullish about the company with all its planned new products and the current subscriber base. If it can get on average $10 from each of the 920,000 subscribers a month, that will take the company to $110M in revenue. And on average per subscriber is not that much given the company is planning to enter credit and mortgages. With this (hopefully), we will see profit in 2021.



Ratings by analysts, Zacks


In its recent report from Zacks Small-Cap Research, it is a ‘BUY’ with a price target of $8.6 (current price $2.6).


Nasdaq analyst research says the likely target price is $7.


On August 16, 2019, BMO Capital analyst Nik Priebe downgraded Mogo Finance Technology (NASDAQ: MOGO) from Outperform to Market Perform with a price target of $3.50 (from $7.00). Source: https://www.streetinsider.com/Analyst+Comments/BMO+Capital+Downgrades+Mogo+Finance+Technology+%28MOGO%29+to+Market+Perform/15827782.html


Lastly, analyst ratings on www.marketwatch.com have 4 analysts rating it as Buy and 1 as Hold with an average target price of 6.14 and next year EPS estimate of -0.43.



Who owns it? Changes in ownership


Institutional ownership is small, with institutions owning just ~6% of MOGO stock totaling just $4M across 13 institutions. So, large investors are still sitting on the fence with this one. Other options could be that it is just too small, which is a limiting factor for many big investment companies, or they did not yet notice MOGO. Among 13 investors holding MOGO stock are 3 of 5 big Canadian banks and a number of smaller investment companies.



Buzz (StockTwits, Investment board)


Public investors did not yet pick on MOGO.

Twits activity is tiny for the stock, with only 3.4 tweets per month.


News coverage is OK with about 20-30 news per month.



Risks


  • Mogo is still a very small company ($70.8M cap) operating in a highly regulated and competitive environment against much larger companies and the big banks with much greater resources.

  • The company is not yet profitable and is expected to need to raise capital in order to sustain itself and grow.

  • The company has already raised over $200 million throughout its history and has yet to achieve profitability or cash flow breakeven. If it fails to raise additional funding, it will be forced to close its business.

  • MOGO can be bought by one of the bigger companies tomorrow in a private deal.



Overall assessment and summary


Mogo is one of those stocks in which stock price can go to pennies and it will get delisted from NASDAQ or it can break out from its current problems and then its stock can easily go up many times. With just $75M in market cap, its stock price can go up easily 10 times to market cap of $750. If it really does everything right with its current developments and products, it plans to launch that compete directly to big banks (cash, Visa card, easy mortgages and loans) and succeeds it can be valued at that can go up 100 times.

Thus, the risk-reward ratio here is massive. I would invest a small amount of the portfolio (3%) to hold for long term for it to either flop or nail it.


My assessment is BUY


You have a different opinion about this stock? I made an error in assumptions? You have additional information to share? Please leave your comments below.


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