Annual losses at newly listed international freight booking and payment platform Freightos increased again in 2022 as the decade-old enterprise tries to monetize its matchmaking technology for streamlining air and ocean transactions.
The company also lowered its 2023 projected revenue growth rate to 15% to 21% (about $22.5 million) from 87% last summer in the face of significant deterioration in air and ocean volumes and rates, which will translate to fewer bookings by logistics providers.
Freightos (NASDAQ: CRGO), which accessed the U.S. stock market in January through a merger with a blank check company, said in a filing Monday that it realized an operating loss of $24.3 million against a loss of $16.3 million in 2021 despite revenue growing 71% to $19.1 million. Extra costs incurred for regulatory and other expenses associated with becoming a public company contributed to the loss, the company said.
Another reason for more red ink is that sales, general and administrative expenses jumped 42% to $13 million. Those operating expenses don’t take into account capital expenditures of $10 million for research and development, a year-over-year increase of 30%.
The Israel-based online reservation platform said adjusted earnings before accounting measures worsened from negative $12.4 million to negative $14.6 million. And the situation won’t improve this year, with management projecting an adjusted loss of $21.2 million to $24.6 million.
“The numbers show that we have successfully created a marketplace flywheel. Although we may still be small in terms of revenue, we believe we have created the dynamics and foundation to grow fast now, and to continue to grow, with excellent capital efficiency, for many years to come,” founder and CEO Zvi Schreiber said on an earnings call.
Executives highlighted previously reported metrics, such as a 154% increase in bookings to 668,000 and gross booking value doubling to $611 million despite a weaker airfreight market, rather than profitability.
Freightos makes money through a combination of flat fees and a percentage of each transaction, but appears not to have figured out yet how to capture a greater piece of the booking value for itself. It also has a white-label solution to be the booking engine on forwarders’ own websites and sells data subscriptions.
Freightos’ revenue was $2 million less than it budgeted for at the start of the year, according to regulatory filings.
Analysts appear concerned that Freightos isn’t growing fast enough to justify how much money it is burning. One potential challenge is that Freightos’ primary revenue source is thin transactional fees on marketplace bookings compared to other software-as-a-service providers that have business models built on recurring subscription revenue.
Schreiber insisted that the company is efficient with its capital.
“Our sales and marketing spend on the platform is less than 2% of the gross booking value and trending even lower. Other marketplaces spend much more than that to fuel growth, with some B2B marketplace leaders spending upwards of 5% of GBV on sales and marketing. Some marketplaces have poured billions into promotions to buy growth. But Freightos is growing its platform organically based on buyer and seller demand with modest spend on customer acquisition,” he said.
Freightos isn’t generating net profit and free cash flow because it is prioritizing product investment and growth, Schreiber added. With gross profit — which only reflects the cost of goods sold — growing 67% and outpacing growth in operating expenses, it’s “inevitable” Freightos will become profitable if the trend continues, he said.
The company’s outlook is for the number of transactions to increase more than 50% despite the air cargo downturn, but cautioned that the 25% to 30% fall in rates since last year means that its gross booking value will lag in 2023.
Marketplace for shipping
Freightos is a multiparty freight booking platform on which carriers sell their capacity and thousands of freight forwarders can conduct real-time rate comparison, book space, make payments and manage shipments in one place. The system, which is primarily used for unplanned shipments, also enables forwarders to share pricing and service to their import and export customers.
The 35 airlines that participate in Freightos’ WebCargo distribution platform represent half of the global cargo capacity. Executives say growth potential is huge, despite competition from other vendor-neutral platforms, because digital transactions represent only about 2% of all bookings.
Several airlines, including American Airlines, Latam Airlines in South America, China Southern and Air Canada, joined WebCargo last year to market their capacity to freight forwarders.
Schreiber explained that it has taken more than 10 years to gain momentum because the air cargo industry didn’t have much digital infrastructure the way the travel industry did with Sabre and Amadeus, which served as the backbone for airline, hotel and third-party booking systems to connect with travel agencies.
Ocean carrier uptake has been much lower than for airlines so far.
Logistics purchasers of air cargo increased to more than 15,000 and the company said new users typically execute four times more bookings within a year of starting. As airlines gain confidence using the system, they are starting to offer customers the ability to book bigger shipments or specialized cargo, such as refrigerated, Schreiber said.
Freightos initially raised $80 million through the combination with special purpose acquisition company Gersher. The money is intended to further develop technology, as well as sales and marketing to attract more customers. The SPAC investors include Qatar Airways.
Financial website Seeking Alpha grades Freightos poorly for return on total capital, net income margin, cash from operations and other metrics. Freightos stock price closed at $4.41 per share on Monday, down from its initial offering of $10.49 on Jan. 25.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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