The Serko Ltd (ASX: SKO) share price has been growing steadily despite the challenging environment. Can the full-year results keep pushing the Serko share price higher?
Serko is a New Zealand travel management software company that enables large clients to book business travel.
SKO share price
Further signs of recovery
Serko seems much more optimistic since it released its HY21 results and with good reason.
During the peak of the pandemic in April 2020, booking volumes plummeted to a record low, representing only 11% of the volumes recorded in the same month of 2019.
However, volumes for last month in March 2021 has recovered to 73% of the corresponding month in 2019. This improved further in April 2021 with levels at 84% of April 2019.
Financial results down as expected
In light of the border closures and COVID restrictions, Serko was always going to record poorer financial results for FY21.
Total operating revenue dropped by 52% compared to the prior corresponding period (pcp), being FY20.
In terms of operating expenses, this rose by 21% on the pcp as it strives to invest for planned international expansion, including a net increase of 54 full-time staff. A big chunk of these employees is in product development and maintenance, and administration.
A decline in revenues and higher expenses translated into a net loss after tax of $29.4 million.
Serko used up $27.5 million of cash for the year, which equates to an average monthly cash burn of $2.3 million. As of 31 March 2021, Serko has a solid amount of cash and short term deposits with $80 million.
My take on Serko
Investors should note Serko’s current share price is near a record high so there appears to be unprecedented optimism in Serko’s growth.
Given this level of optimism, Serko will likely need to continue where it left off prior to COVID when it was growing revenue between 50% to 340% between FY16 to FY19.
I think large corporates and businesses will spend less on business travel because they have identified the significant savings achieved through using technology.
This should be factored in when considering the growth rate required to justify Serko’s current valuation.
Whilst it’s encouraging to see Serko deploying capital towards product development, these costs should be closely monitored.
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