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Why Symbio sees a long growth story in the Asian market

 

Why Symbio sees a long growth story in the Asian market

In this video Gary Rollo joined Symbio’s (ASX:SYM) CEO and Co-Founder Rene Sugo to introduce the business and share how the businesses’ telecom software works. Rene also delves deeper into Symbio’s opportunity in Asian markets and the growth prospects there.

Transcript

Gary Rollo: Welcome to the Montgomery Small Cap CEO Series. Today we have the CEO and Co-Founder of Symbio (ASX:SYM) with us, Rene Sugo. Hello, Rene. Good to see you.  Now we’re going to talk a little bit about Rene’s business. But Rene, maybe if you could just give some introductory remarks about Symbio to help us along.

An introduction to Symbio

Rene Sugo: Symbio has been around for 20 years, come this November, so quite a long time. We started in 2002 and then we listed on the ASX in 2006. Primarily we’re a software business that provides the glue for other software companies to access the telephone network, the traditional telephone network. So we’ve been servicing a lot of the big name retail software brands and retail service providers in the Australian market during that time. We started probably most famously with Skype in 2006, providing them connectivity, but also we have brands like Google, Microsoft Zoom for example, and a lot of those big software companies that really specialise in software applications but need a little bit of telecoms to make their product fly.

So we’ve been doing that in Australia for 20 years, and recently we’ve just embarked on an expanded strategy to move our product set into some key digital markets in Asia. And that’s quite exciting as the next stage of growth for our business. We’re a profitable business. We are generating positive cash flow every year. We have 43 million in cash on the balance sheet, no drawn debt. So we’re roaring and ready to go.

Gary Rollo: Thanks very much. What I might do is draw out a couple of interesting things that you’ve mentioned. Let’s touch on, first of all, that telecom software, because it’s not just any old telecom software as you hinted at there. It’s in an area of the market that’s clearly facing some strong growth opportunities. Perhaps tell us a little bit about it and give us some context there, a little bit about what you take care of for your customers.

Can you tell us about the telecom software?

Rene Sugo: Absolutely. So a lot of people think of telephone or telecommunications as their landline phone, which is now gradually becoming obsolete. Also maybe the mobile phone, and obviously you dial a phone number to speak to people in real time. So if I boil down the telephone to the bare basic things, it gives you what I call, any to any connectivity in real time to anywhere in the world. You dial a number, it rings, you can speak to someone, and that’s a fantastic value proposition.

What’s happening now is, we’re all moving into the software world. We’ve got applications on our smartphone or on our desktop laptop that lets us actually do voice communications or video communications like what we’re doing today. Those applications still need to talk to that legacy telephone network. They still need the value of the phone number. The value of the phone number hasn’t gone away, even though you might see that the fixed line’s gone away or you don’t use the phone as much as you used to, that primary value of being able to dial a number and get through is still there. And when people need to communicate, whether it’s businesses communicating with consumers to close a deal, whether it’s consumers communicating with businesses to make a complaint or even place an order, that phone number gives you that real time connectivity that things like SMS and email and messaging don’t.

So the world is changing. We’re definitely moving into that software world, but we’re seeing a strong demand for phone numbers being able to be used for these new software applications all around the world.

Gary Rollo: Fantastic. So you take care of the plumbing of the new world interacting with the old.

Rene Sugo: Exactly right. We’ve built that bridge and there’s a lot of people using it.

Gary Rollo: Great. Well maybe if you touch on how the business model of the company works to connect that software product with the outcomes that you might be able to expect financially.

How does the company’s business model work?

Rene Sugo: Using your analogy of the plumbing, the traditional telecoms network has been built for about 150 years. Traditional software companies don’t want to worry about that. They don’t want to think about those old things. They just want to focus on their business, which is selling their subscriptions. So we in fact offer them a subscription based service where they can buy phone numbers from us. We look after all of that network complexity, all of the regulations, all of the engineering and that sort of thing, and we deliver them the product they need in their data centre where they’re hosting their software. And everyone’s heard of the cloud and data centres, of course. They’re very popular these days. It’s a growing market, and that’s growing because people are deploying all the software in these data centres.

So we deliver the phone calls and the phone numbers into that data centre. It lets the software companies consume them en masse in real time, and it’s a subscription. And the reason that really works is because a phone number, once you advertise it or you put it on your business card or you have it on your website, you want that phone number up and running 24 hours a day, 365 days a year. So it’s a very sticky business, and the reason we are successful at selling this on a subscription basis is that people want that service level that we give them, the quality, the availability and the reliability that they need to basically put their business brand behind that phone number.

Gary Rollo: Fair enough. Very interesting. Now you mentioned that the business model has been operating in Australia for, I think you said 20 years. Clearly an overnight success story that’s taken 20 years to play out. But what we could also talk about is going into some of those Asian markets. Perhaps you can give us an outline of Symbio’s Asian opportunity and take us through that if you will, Rene.

What is Symbio’s opportunity in Asian markets?

Rene Sugo: A lot of the customers I’ve mentioned that we have, are actually global software companies. They want to operate in a hundred countries or 200 countries if they can. And for them to do that, they need to solve the same problem that we’re solving for them here in Australia, which is how do I hide all that complexity of the traditional networks and just be able to offer a service out of a data centre? And it may surprise a lot of Australians that these services aren’t available in some of those really strong digital economies in Asia. So our customers for some time have been speaking to us and saying, “Look, you are doing a great job for us in Australia. I wish I had a partner like you in Asia.” So it was a question of pulling on that thread and saying, well, what would that mean? What would we have to do to provide those services? What demand is there from our customers? What are they doing today for example, to satisfy those needs?

And we found that a lot of our customers weren’t offering a complete product set, or they were making the local consumers integrate the telephone network themselves, which adds a lot of complexity and cost to their business model. So we basically built a business case to say, well, if we can replicate our software stack that we have here in Australia, deploy it in some key digital markets around the Asia Pacific region, we could grow our total addressable market quite dramatically. And that’s quite exciting because Australia has 25 million people and there’s 80 million phone numbers in Australia, which means on average we have more than one phone number each, which makes sense because you’ve got multiple applications and you’re doing multiple things at once, so that’s all logical, but it’s still a finite market.

Whereas if we go to some of the key markets that we want to in Asia like Singapore, Malaysia, Taiwan, South Korea, Japan even, and even places like Vietnam, we can increase our total addressable market to 500 million people, which is a huge market. Which means of course we can continue to sell many, many more phone numbers for many more years to come. But also it makes us a very strategic partner for our customers. So when a global software company looks at the region, they don’t have to solve the same problem 10 times. They go to Symbio and they say, “Okay, Symbio’s got a great portfolio, I’ll take it all. And by the way, can you deliver it all into my data centre in Singapore or can you deliver it all into my data centre in Taiwan?” Which is another value add that we can give to our customers. So it really becomes a very compelling story both from our customers’ perspective and also from our business growth potential.

Gary Rollo: Well, sounds excellent. It’s not every day you get to hear about an addressable market going up 10 times. So that’s quite interesting. Maybe it’s worthwhile talking a little bit about where you are on that journey. Obviously you’ve got a successful business here already in Australia. I know from having looked at your company, you’ve got north of 6 million phone numbers hosted on your network here today in Australia. But I also know that you’ve started your journey going into some of these Asian markets. Perhaps talk to us about the first few that you’ve identified and where you are in that process of entering those markets.

Where are you in the process of moving into Asian markets?

Rene Sugo: So as you mentioned, we have just over 6 million phone numbers here in Australia and we’re growing at 20 per cent compound annual growth rate here. We’re hoping to add a million numbers this financial year in Australia alone. So that’s pretty exciting for a mature market. As you mentioned, we’ve been dabbling in Asia. We actually went into Singapore about three years ago. We started the Singapore project as a bit of an experiment, a test case, to determine if we could do it, we obviously understand the challenges of doing business in Asia and the regulations and the logistics of that. So we’ve successfully launched Singapore now. About 20 of our global customers now signed contracts with us there. And they’re working through their logistics of getting us into market or getting their products into market on the back of our network. And they’re starting to order phone numbers now, which is really, really exciting.

So based on that validation, we’ve actually kicked off Malaysia. We hope to launch Malaysia in H2 of this financial year. That’s pretty exciting. We are also looking at Taiwan as the next market with it looking to move north and then probably South Korea soon after Taiwan. So we’re hoping to do that all in the next 12 to 18 months. And then of course we’ve got the mega markets of Japan and Vietnam, which we’re looking at a hundred million plus people. We’re hoping to have that done by 2025.

So our goal is if we can enter these markets, have the network built, have our customers provisioned and deployed by 2025, it really sets us on a really good trajectory to be able to maximize the total addressable market. And we set ourselves an aspirational goal of getting a hundred million phone numbers onto our network by 2030. So that’s our vision. Mathematically, it looks very steep, but once you take into account the size of the total addressable market that we’re going into, it really becomes a realistic target.

Gary Rollo: Okay. Well look on those high notes, I think what we’ll do is we’ll bring it to a close there. I’ll offer you my thanks, Rene, for explaining the business and the opportunity that the business faces in Asia. And perhaps I might say that once you’ve got some progress to update us on, I might get you back on to give us a little bit of an update about how Asia’s going. But on behalf of us here at Montgomery, thank you so much for explaining all that for us, Rene.

The Montgomery Small Companies Fund own shares in Symbio. This video was prepared 18 October 2022 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Symbio you should seek financial advice.

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Gary is the Portfolio Manager of the Montgomery Small Companies Fund. Gary joined Montgomery in August 2019 after spending three years at MHOR Asset Management in Sydney as a Founder and Portfolio Manager. Prior to this, Gary was a Portfolio Manager at Renaissance Asset Manager in Sydney for six years. Before moving to Australia, Gary spent five years in London running Morgan Stanley’s Technology Sector Equity Research Team, as well as two years covering technology companies for JP Morgan.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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