Boku shares fight back after 28% plunge

They’re still sharply lower, but bargain hunters hoovered up shares in the mobile payments platform.

Backing for Boku (LSE:BOKU) as one of five AIM stocks to watch for 2020 suffered an early setback today when shares in the mobile payments specialist tumbled as much as 28%. That they have since recovered a large chunk of their early losses does at least imply there is support for the business.

The technology company, which is paid a percentage-based fee by merchants for processing payment transactions over mobile phones, has just published a year-end trading update in which it said underlying earnings are likely to be at least 59% higher at US$10 million.

CEO Jon Prideaux pointed out that nearly 19 million end-users made their first transaction through Boku in the year, helping merchants to process transactions worth $5 billion.

However, shares fell sharply today amid apparent market disappointment at the pace of revenues growth for Boku Payments, despite an expected 2019 rise of 23% to $43.3 million.

 Source: TradingView Past performance is not a guide to future performance

It has taken Boku a decade and more than $100 million to get this far, with the company's platform now connecting more than 190 carriers worldwide and used by the likes of Apple, Google and Facebook to enable consumers to make purchases through their mobile phone bill.

Growth in music and video streaming and online gaming means that the digital payments market should continue to grow strongly, particularly in countries where there's a reluctance to make online credit card payments.

As Boku's costs do not have to go up in line with revenues, achieving higher sales through the platform should have a large effect on profitability. That was one of the attractions for our award-winning AIM writer Andrew Hore, who picked Boku at 86.5p alongside CentralNic (LSE:CNIC), Alumasc (LSE:ALU), Northbridge Industrial Services (LSE:NBI) and Ilika (LSE:IKA) as the junior market's stocks to watch in 2020.

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He's not alone, however, in his belief that Boku shares can head back towards the 184p seen in the year of its November 2017 flotation, when a significantly oversubscribed placing of shares at 59p raised £30 million for selling shareholders and £15 million for expansion.

House broker Peel Hunt recently named Boku on its list of growth stocks for 2020, with a target price initially as high as 245p. That's since been scaled back to 145p following today's update.

Describing Boku last week as the “pick-and-shovel” for the subscription economy, it said the company had been trading at an unwarranted discount to its peers of around 33%.

The concern for investors has been that Boku's entry into the digital identity space is taking longer than expected. Today's update reported steady progress in 2019, with revenues increasing 26% and losses reducing since the creation of Boku Identity through the acquisition of California-based Danal Inc.

That deal has broadened Boku's product range, with Prideaux describing demand from global companies for a secure and simple worldwide way of verifying users on mobile as “plentiful”. He added that there were six potentially transformative deals in the pipeline.

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Prideaux, who started Visa Europe’s ecommerce division and has more than 25 years of payments experience, is also excited by at the potential of adding e-wallets to the Boku payments platform. They are already the dominant payment mechanism in Asia.

On top of recent partnerships with the GrabPay and GoPay wallets, Boku has also signed agreements with ten wallets with more than 1.4 billion customers in nine countries. It believes this presents an opportunity which could materially expand Boku's total addressable market at minimal incremental cost.