Why Xurpas stock lost its sizzle

By Jose Bimbo F. Santos,
Bloomberg Philippines

MANILA — Two years after a hot debut at the stock exchange, Xurpas stocks have continued to slide recently. The Philippine tech company’s stock lost over half of its price from last year’s peak as market expectations leveled down after a string of acquisitions that have yet to bear fruit.

After its initial public offering (IPO) price of P3.97 each in December 2014, the company’s stock hit a high of P19.24 in April last year before a sustained downtrend. Shares in Xurpas closed at P5.57 each on Thursday.

Joseph Y. Roxas, president of Eagle Equities, Xurpas stock is “very expensive based on its current level of income.”

“The outlook for a tech stock is that growth is supposed to be very fast and that is not showing in the numbers,” Mr. Roxas said, noting that its current price-to-earnings ratio of 41.07 remains high.

During the first half of 2017, the company’s net income attributable to shareholders rose 7% to P108.72 million year on year. However, its second quarter earnings went down 71.5% to P13.82 million, which Xurpas attributed to seasonality of earnings, as some clients put mobile campaigns on hold.

Xurpas Chairman and Chief Executive Officer Nico Jose S. Nolledo said it is “important for the market to look at Xurpas as a long-term play.”

“When investors look at us as a tech company, I think the expectation is that we will grow as fast as a high-growth privately held company. But at the same time, grow our bottom line as if we were an established blue-chip that’s been around for a hundred years. That balance is very difficult to keep,” Mr. Nolledo added.

Xurpas went public in 2014 after having built a business record making mobile products, seen as a high-growth industry due to the unrelenting smartphone and mobile broadband penetration locally. Internationally, it was also a heady time for e-commerce and mobile, coming three months after Chinese tech giant Alibaba raised $21.8 billion in a blockbuster IPO tagged as the biggest in the US, and the unveiling of the Apple Watch, the company’s first new product under CEO Tim Cook and marketed as “the next chapter in Apple’s story.”

Post-IPO, Xurpas has snapped up a series of companies. Based on the company’s 2016 annual report, it already holds a dozen companies in its portfolio. Its last major acquisition was in October last year when the company bought Singaporean mobile marketer Art of Click for $45 million.

Mr. Nolledo said they are now quite done with shopping to pivot towards being a “platform” business, likening it to what tech companies like Airbnb and Uber do.

“We’ve over-invested in making sure that we make the right transition to the platform side of business,” Mr. Nolledo said. “The platform side is where you create an ecosystem that allows third party partners to access your audience.”

Luis A. Limlingan, head of research at Regina Capital, likened the company’s strategy to one of a venture capital firm placing bets on start-ups, where only one out of 10 bets usually pay off.

“A lot has happened to the company over the course of the year,” Mr. Limlingan said. “From the alluringly aggressive company that generates high earnings with low debt and low assets, Xurpas has now entered into a dormant state with still above average margins (although significantly lower than previous years). The reason for this is due to the company’s strategy to currently integrate everything that they have acquired.”

On the other hand, Justino B. Calaycay, senior research analyst at Philstocks Financial, Inc., said investors may now just be opting for more traditional equity classes.

“Against the rising backdrop of generally cautious optimism heading into the second half of the year, investors may have increasingly become more risk-averse, opting instead for what comes closest to safe havens insofar as equities are concerned,” Mr. Calaycay said.

Amid the change in investor mood from sizzling to tepid, Mr. Nolledo said Xurpas remains confident of its prospects as opportunities in mobile digital advertising continue to expand, not just in the Philippines but regionally as well where they are now carving their space.

“It’s a learning experience both for ourselves and the market,” Mr. Nolledo said.