Technology firm Xurpas Inc. expects to be on consolidation mode this year while striving to balance quarter-to-quarter profitability with the need to invest in engineering resources for long-term growth.
With its recent investments, Xurpas is chasing vast opportunities in Southeast Asia, one of the two fastest growing internet markets aside from India, particularly in the areas of mobile gaming, online advertising and e-commerce, Xurpas chair and chief executive officer Nix Nolledo said in a recent briefing.
Since listing on the Philippine Stock Exchange, Xurpas has invested in a number of tech companies in the Philippines and across the region.
Last week, Xurpas reported that first semester net profit attributable to equity holders of parent firm rose by 7 percent year-on-year to P108.72 million. However, second quarter net profit slid by 71.5 percent year-on-year to P13.82 million, citing seasonal weakness in digital advertising spending and hefty increase in expenses as Xurpas invested in engineering resources.
Xurpas nearly doubled its six-month revenues to P1.21 billion revenues compared to P736 million in the same period last year. Mobile consumer services made up 71 percent of total revenues, followed by enterprise services at 26 percent. Mobile consumer grew by 116 percent year-on-year, while enterprise growth was 2 percent.
“Our first half revenues for this year are already 61 percent of our full year 2016. Looking forward, we see our full year 2017 topline to grow modestly, while we continue to lay the foundation for future growth through our new platforms,” Nolledo said.
Expenses in the first half nearly doubled to P1.02 billion from P544 million a year ago. Nolledo said Xurpas has been investing in such engineering resources in line with its aspiration to become a tech platform company.
“Two years ago we began investing and acquiring companies that provide the crucial components to our long term growth. Last year, we began the process of integrating the new capabilities that came with these investments to build game-changing platforms. Next year, we hope to begin showcasing the fruits of our hard work,” Nolledo said.
More than 90 percent of the products of platform companies are created externally, like the world’s most valuable tech companies Facebook, which makes money from people’s conversations and Google, which makes money from websites they don’t own, Nolledo said. The likes of Uber and AirBnb are likewise platform companies.
“Xurpas, at present is not a platform company, and we told ourselves that for us to become very large, for us to have a strong position to take advantage of Southeast Asian opportunities, we need to be a platform company,” Nolledo said, adding that it’s thus imperative for the company to continue investing in engineering resources needed to transform itself into a platform company.
“Admittedly, it’s easier said than done because external pressures from market and investors can cause us to take the eye off the ball. But we try to be very disciplined and try to execute based on our long-term plan,” he said.
The challenge for Xurpas will be to grow its topline at the same pace as privately-held tech companies while sustaining quarterly earnings growth.
Every time management is faced with a crossroad-type of decision of whether to invest in a certain opportunity, Nolledo said in nine out of 10 times, the company would likely calibrate in favor of long-term growth.
“Do we enter this space or do we invest in this opportunity because we think that in three to five years’ time, that opportunity will be very massive and we’ll have an early mover advantage and scale because we’re investing in it early? But if we do that, then our quarter on quarter earnings, our bottomline will not be as great from a bottomline perspective,” Nolledo said.
“As shareholders and as captains of the business, we have to look out for the long-term prospects of the company,” he said.
Meanwhile, Nolledo said the stock market debut of gaming subsidiary Xeleb Inc. was still on the table but this would depend on regulatory approvals.
Xeleb had filed its registration statements with the Securities and Exchange Commission (SEC) to offer up to 290 million common shares at an offer price range between P2.04 and P2.54 per share.
Based on the offer price, Xeleb can raise at least P591.6 million to as much as P736.6 million from this capital-raising activity, which will bring to public hands about 19.68 percent of the company’s total outstanding capital stock.