Truecaller AB

Truecaller got off to a successful start as a public company in October 2021, with the shares rallying from the IPO price of SEK52 to a peak of over SEK130. Since then, however, the company failed to keep up with expectations as growth of its core advertising revenues slowed sharply. Despite a good Q1 result, the shares are languishing well below the IPO price

Given the underlying weakness in the advertising business, the company have been at pains to demonstrate growth from new revenue streams — in particular what they call “recurring revenues” based on selling premium subscriptions and selling to business customers. The chart below from the FY 23 presentation shows the healthy growth achieved in recent quarters.

Combined “recurring revenue” as of Q1 24 was SEK 108m. While only 25% of overall revenue, this has become the key growth driver of this business, with the lion’s share coming from “Truecaller for Business” (up 44% YoY in Q1 24). This service allows business users to become verified by Truecaller, allowing them to be displayed as a trusted profile to recipients on the Truecaller App.

Associated with growth of this revenue stream, there has been a 25% increase in FY23 in “Accounts Receivable” from business customers. This brings us to the key red flag raised by our system (see extract from our report below), which is based on a sharp deterioration in the ageing profile of receivables. We see here that receivables past due more than 30 days have more than doubled from 6% to 13% of total receivables.

Looking into the disclosure itself, we find that the ageing profile combines Accounts Receivable from business customers (SEK 76m) with accounts receivable from advertising networks and platform owners (SEK 86m). Since the majority of ad revenues are generated via Google and Facebook, we believe most of the severely past-due receivables are likely to originate from the Truecaller for Business product.

We can see here there are SEK 21m of receivables past due more than 30 days, of which SEK 5.5m are past due 120 days (up sharply from SEK 2.7m in the previous year). This category now represents over 10% of the revenues booked by Truecaller for Business in Q4. We would suggest that if a customer is overdue on their bills by 4 months, they are unlikely to represent a reliable or recurring revenue stream. Because of this, we question whether the growth demonstrated by the company is entirely sustainable.

The numbers are not hugely material at this stage, and the receivables look well provided for. However we believe investors should pay attention to the strength of the trend here. Either the ability of business customers to pay has deteriorated or the company has been aggressively growing business with lower quality customers who have signed up, but are unlikely to keep up with payments.