Dropsuite (ASX: DSE) (OTCPK: EXMXF) shares are down 26%. The DSE share price fall seems to have come from the results announced being good but not as good as some expected or hoped. As so often happens, hopes and dreams have got ahead of reality, for the shares had a good run up - now near entirely lost of course - in the period leading up to the results announcement. We can also take this as another proof - test perhaps - of that old adage, buy the rumour, sell the fact.
There's nothing actively wrong with the Dropsuite results: USD monthly ARPU growth of 3% QoQ benefited from further mix shifts to higher ARPU products. Cash receipts from customers were $6.66 million, up 9% on Q1 2023 and up 53% on PCP. The cash
receipts growth remains consistent with ARR growth for the quarter. Cashflow generated from operating activities of $0.34 million, +20% QoQ. Cash on hand is $22.96 million. The Company remains operating cashflow positive whilst continuing to reinvest in expanding the company's global capabilities.” There's nothing actively wrong with those results. We're not going to run screaming in terror from them.
In fact, in one manner we should admire them. The management has said that it wants to grow the business - obviously. But it's also said that it wants to do so from internally generated resources. Which means that surplus additional cashflow would mean they were underspending on expansion, negative cashflow over doing so. That actual positive cashflow was $340k means that they're getting their calculations pretty much right. Which is good - always like managements who can count the pennies properly.
Dropsuite share price from ASX
The actual problem we can see just from the share price chart above. Investors chased the shares higher in anticipation of the results. And the results, while good, were not as good as expected - therefore all those gains have been given up. Thus that incantation of the mantra, but the rumour and sell the fact.
As background here what Dropsuite actually does - more than it's “something tech” - is provide could backup systems. A good and sensible thing for everyone to be using. But there are a number of people who do provide this service. Therefore it is something that has to be sold - there is no great flock of people charging at suppliers to buy it unpersuaded. Things that have to be actively sold do tend to grow slower than those which sell themselves.
Pity about that and all but that is the way that we read it. Dropsuite is unlikely, in our opinion, to have explosive growth just because it supplies something that has to be sold to people.
