This is not investment advice. Do your own research before taking a position in any of the securities mentioned in the post below. The author may hold positions in any of the securities mentioned.
PushPay, which was founded in NZ in 2011, provides donor management system to churches, non-profit organizations, and education providers in the United States, Canada, Australia, and New Zealand.
Putting aside one’s immediate reaction about profiteering from donor technology business, there are a few things to note:
Pushpay, which now has +11,000 customers (c.7,000 churches) and operates in a market that was broadly underserved by technology
Pushpay’s customer reviews, unlike are quite strong vs. Ministry Brands (its bigger competitor which owns MoGiv, Kindrid)
This industry has removed friction from the donation process has generally seen donation size/volume increased; Pushpay current average donation is US$199
Their payment fees are currently 3.5-3.8% but the back-end services which they provide churches is the key point of difference
Alternative payment systems would cost the church regardless and alot of these are still not fully integrated to churches/donation based institutions
Financial overview & M&A track record
PushPay has only reached profitability in 2019 and has had to make a number of acquisitions along the way.
o 2016 – Bluebridge church app for US$3.1m
o 2019 - Church Community builder for US$87.5m
o 2021 - Resi Media LLC acquisition for US$150m
It has also internally launched businesses such as in September 2020, when it released ChurchStaq, a suite of software to help churches manage their finances.
Why this company is worth considering when
Firstly, so we are clear, it is generally not a good idea to buy a company after it has had a) >100% YoY profit growth and b) when it is trading at c.42x Operating Cash Flow. Nonetheless, this company is worth putting on your watchlist because
The majority of giving is still done via cash/cheque so the addressable market is likely to grow as donors move to digital
Even though I do not understand the intricacies of donor management, the PayPals of the world are more focussed on eCommerce than this end of the market
Their major competitor Ministry Brands, whilst materially larger, has a very fragmented business & generally has weaker integration into the churches
Customer retention for this business is +90% and customer break-even is <14 months; so they can afford to spend big to acquire market share
They have clear strategy of expansion (e.g. targeting 25% share of catholic donation market in the long term)
They can have various inorganic growth options (e.g. acquire Subsplash and Aware3) which are likely to be value accretive
Despite all this positivity - like all things it is not without risks. Pushpay is valued at a high multiple, they need to approach smaller customer at slimmer margins as these market gets saturated and they may have dilute equity through M&A.
All this being said, PushPay was amongst one of the first movers into this market 9 years ago and their cost and M&A management has been sound to date. It will certainly be interesting to see how their battle with Ministry Brands plays out in the catholic and non-US markets.
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