Forgive me for I've missed the rise of Tinybeans Group Ltd (ASX: TNY). And it's always disappointing to miss the rise of a '10 bagger' in less than a year.
The Surry Hills-based start-up is now worth $125 million according to local share market investors. It has that market value based on 38.045 million shares on issue and today's share price of $3.29. This time last year shares changed hands for just 31 cents.
So what's behind the rise of Tinybeans?
The group is a technology platform or app that allows parents to share and collect family photos of their young children. The Tinybeaners claiming that sharing too many photos of children on alternative social networks such as Facebook or Instagram may hurt the children as they grow older.
The Tinybeans app also has specific features providing parental advice, or tracking development milestones for children for example.
The user growth is pretty impressive, with 3.55 million users mainly in the U.S. as at September 30, 2019.
That's up 50,000 on the prior quarter and 27% on the prior corresponding quarter.
The financials are less impressive with it posting an operating cash loss of $560,000 on revenue of just $1.1 million for the September quarter. It has no debt and $5.1 million cash on hand.
Anyone can see the main problem is the errr 'tiny' revenues and a balance sheet not exactly flush with cash.
However, it might be childish to criticise the revenues.
Why?
For now Tinybeans is probably a scale, network effect, or user growth game as it can focus on monetising the business later.
For example if it charged too much to use the platform most parents would be put off and use free alternatives.
This is conceptually similar to the idea that if Facebook had charged users back in 2005 it would have never taken off in the viral way it did. It's always been a scale and network effect game.
As such we can see the true valuation of the unprofitable Tinybeans is somewhat subjective. I'm not a buyer of shares for now, but its growth rates suggest it's worth watching.
