Kooth (LON: KOO) shares are up 30% on Tuesday in London. KOO shares have jumped on the back of the final signing off of their $188 million contract in California. It's entirely possible to think that, from the point of view of the State of California, this is all a grotesque waste of money. That then spills over into how we might think the contract will work out in the long run. However, at this stage it's clearly a transformative deal for Kooth and money is indeed money as the man once said.
The specifics of the deal are: “Further to the announcement on 16 March 2023 of the selection of Kooth (AIM: KOO), a global leader in youth digital mental well-being, as primary vendor partner to California for digital mental health to 13-25 year olds, the Group is pleased to confirm that definitive contract documentation in relation to this has now been signed (the "Contract"). The Contract confirms Kooth's momentum in the US market and follows a pilot contract signed with Pennsylvania State in 2022.” This is expected to add substantially to revenues and - of course - hopefully to profit as well.
In combination with this there is also a capital raise: “Kooth (AIM: KOO), a global leader in youth digital mental well-being, announces a proposed placing (the "Placing") to raise gross proceeds of approximately £10 million through the issue of new ordinary shares of 5 pence each (the "Placing Shares") at a price of 300 pence per share (the "Placing Price"). The net proceeds of the Placing will be used to accelerate its international expansion strategy, including continued platform development and investing in US growth.”
It's pretty unusual to see a share price rise 30% when a placing is announced but the value of the California contract is such - relative to Kooth's size - that it does make sense.
Kooth share price from London Stock Exchange
Now we, of course, are complete and total cynics. We don't think there's an outbreak of teen mental health problems in California. We then don't think that an online app is going to do much about it if there is and finally, the State of California is wasting $188 million here just because that's what they do.
But those are all problems relevant to the taxpayers of California. Kooth here is the recipient of these funds and, well, not our problem that the whole thing's a bad idea - it'll still be possible to cash the cheques. The only difficulty we might see is that after this first four year term the contract might not be renewed - on those grounds of waste. But 4 years is a long time, right?