PensionBee, is the buzz real or could it be a stinger?
I believe that there is a lot of hype and too much buzz surrounding PensionBees share price and the market seems to be favoring the company even though the numbers seem very odd and bubbly. Here’s why; PensionBees annual turnover in 2019 was £3.5m, up 149% from 2018, its AUA* reached £745m and its customer base passed 38,000. For 2020, PensionBee announced that its annual turnover was £6.3, up 77% from 2019, its AUA reached £1.4bn and its customer base passed 403,000 customers. For Q1 2021, PensionBee had 476,000 registered customers and its AUA reached £1.65bn. This seems like one roaring company growing exponentially, especially with its customer base and its AUA, so why do the numbers seem odd and bubbly?
*Assets under administration
For one, PensionBees market cap is trading 63x its 2020 turnover, which is one of the highest numbers I have ever seen. Even Teslas market cap, which is the poster child for all bubble stocks, is trading 22x its annual turnover.
In April 2021 PensionBee went public onto the LSE and they priced their stock at 165p per share, which gave them a market cap of £384m. Within a few days of the listing the share price broke 184p and their market cap reached £409m. In my opinion this is a very high valuation for a company with an annual turnover of £6.5m, it’s a bubble stock that’s been very overhyped. Another way to put it, at 184p per share, PensionBees annual turnover equates to just 1.6% of its total valuation. These numbers, in terms of valuation to turnover, seem very bubbly and in my opinion they show us that the stock is very overpriced.
For two, there is a disparity amongst PensionBees type of customers and they have three different categories of customers. These categories include registered customers, active customers and invested customers. Out of these three customer categories only the invested customers have acquired a service from PensionBee, the two other types of customers aren’t really customers, they’re basically subscribers being called customers. PensionBee deems them as customers in their numbers because anyone who registers with them is deemed as a customer. When you look into their customer data, out of 476,000 total registered customers, only 81,000 of these customers have actually invested capital with PensionBee, which is just 17% of their total registered customers. Let’s say for example, 100 people decided to enter a fashion store and just 17 of these people decided to buy a product from the store, then what does that say about that fashion store? I shall let you answer that one for yourselves.
But in my opinion that is not a good look if just 17% of people who register with a company end up purchasing services from that company. If I owned a shop and only 17% of people who entered my shop ended up buying a product, then I wouldn’t deem the odd 83% as customers, I would deem them more as browsers rather than customers. If you owned a shop, would you call people who enter your shop but don’t buy anything, customers? Then why is PensionBee calling those types of non-customers, as customers? Seems odd.
Valuation to annual turnover wise, that is a market factor not a business factor but in order to provide transparency towards investors, I believe that PensionBee needs to issue a conversion rate for their active customers or they should rename their non-invested customers to ‘potential customers’. Conversion rates will provide transparency and these rates should be based over a period of 3, 6 and 12 months. So for example, if 100,000 customers register with PensionBee and after 6 months 50,000 of these registered customers become invested customers, then that’s a conversion rate of 2:1, in percentage terms that’s a conversion rate of 50%. PensionBees conversion rate since its inception is 10:1.7, in percentage terms that is a conversion rate of 17%. PensionBee issuing conversion rates every quarter would give investors more of an insight into the demand and the interest towards PensionBees services it provides. PensionBee renaming non-invested customers, as ‘potential customers’ would provide investors with clarity in terms of who has acquired a service and those who were interested but didn’t acquire a service. Either one, or both, would be good for the company, investors and the share price. Transparency prevails in the markets.
Yes I know that the buzz surrounding PensionBee is quite high at the moment, tabloids and media outlets are focusing on the registered users and its AUA and there are also a lot of awards being thrown around left, right and centre. The company and its young founders are being portrayed as a success story and one tabloid called PensionBee a “great British success story”, and company wise I totally agree with that quote. However, stories and awards don’t pay the bills, the numbers always come to lighr and the next 12 months will show us if the stock trades around its hype, its customer data, its AUA and its coverage, or will it trade around the financial results and within the realm of rationality not bubble territory, we shall know by summer 2022.