Seeking Alpha • Jan 11
Kaleyra: The Global Chase Of Digitalization Is The Key To Growth
Summary
The global chase of digitalization will help boost Kaleyra’s growth opportunities.
Kaleyra has the ability to create more partnerships and acquire customers which makes it a sustainable company for growth.
CPaaS is crucial for businesses to acquire clients and customers, Kaleyra can be the communication platform for these businesses.
Investment Thesis
Global digitalization is changing the way businesses operate and communicate with customers, and companies that can adapt to this trend are well-positioned to succeed in the modern market. Kaleyra, Inc. (KLR), a communications platform as a service [CPaaS] business, has a strong reputation in the industry and is well-suited to navigate this shift due to its focus on digital communication services. The CPaaS market is expected to have a high CAGR in the next 5-10 years, making it an attractive industry for investment. Additionally, the restoration of European parity will contribute to the stability of the company's market value, further positioning it for success in the digital age.
An Overview Of Kaleyra
Kaleyra - Investor Relations
Kaleyra, Inc. is a company that provides a cloud communications platform for enterprises worldwide. Its platform integrates software services and applications that enable mobile first interactive end-user customer communications. Kaleyra, Inc. provides mobile messaging services for financial institutions and various other types of enterprises and customers. The company was founded in 1999 and is headquartered in Milan, Italy.
So basically, Kaleyra is a CPaaS company that offers a lot of communications services through internet telephone such as SMS, Voice, WhatsApp, Chatbots, and more. Kaleyra's in a very big market, and with $1 trillion spending in digital transformation in 2021 (expected to grow to $3.4 trillion in 2026), being well-positioned this early on will be a great advantage towards future growth potentials.
To illustrate my point on why Kaleyra can perform well in the future is if it exercises these factors (the more the better):
Strong Product Offering - A CPaaS business that offers a high-quality, reliable, and feature-rich platform is more likely to be successful. Kaleyra has a wide variety of products ranging from SMS, Voice, WhatsApp, Push Notifications, E-Mail, and Video. For businesses, Kaleyra has tools such as a Flow Builder, Contact Center, Chatbots (which I personally think helps businesses a lot to have an automated response for answering generic FAQs), Campaign Management and more.
Strong Customer Relationships - Building strong relationships with customers and providing excellent customer service can be crucial for the success of a CPaaS business. Just recently, the company secured a partnership with Fincons Group to transform digital collaboration in banking. Acquiring more customers will help Kaleyra succeed in its industry.
Kaleyra - Investor Relations
Scalability - The ability to scale the platform to meet the needs of a growing customer base is important for a successful CPaaS business. Since Kaleyra has a lot of product offerings and tools, the company is easily scalable. As an example, businesses require a lot of tools to make it easier for them to connect with their clients; Kaleyra can improve its tech through APIs (Application Programming Interfaces). According to Dario Calogero, Kaleyra's CEO:
In addition, we reached a key milestone with one of our existing partners in the third quarter, Google Verified Calls. We crossed 20 million Google Verified calls managed through Kaleyra Voice API in 2022 with 10 million of those calls managed in August alone.
- Dario Calogero on Kaleyra's Q3'22 Earnings Call
This proves that Kaleyra is a scalable company with products and tools that can attract a large customer base. More customers mean more revenue for Kaleyra.
Kaleyra - Investor Relations
Flexibility - A platform that is flexible and can be easily customized and integrated with other systems and processes is more likely to be successful. Again, with the wide variety of products and tools Kaleyra offers, they also become flexible to the customer/business they partner with. Something like their Campaign Management and Direct Carrier Billing features makes it easier for companies to connect with their clients due to the available tools that Kaleyra provides.
Kaleyra Verified SMS
Innovation - A CPaaS business that is able to continually innovate and stay ahead of industry trends is more likely to be successful. Innovation is a given since Kaleyra offers its products and services to its customers, thinks like Premium SMS as a new stream of payment, Verified Calls and Texts for your business (custom brand name, logos, and verified symbol when calling), and plugins for platforms like Shopify (SHOP), where it's easier for businesses to connect with its customers. These innovative features that improve business client connection are why companies partner with Kaleyra.
Financial Performance - A CPaaS business that is profitable and has a strong financial foundation is more likely to be successful in the long term. Currently, Kaleyra is less profitable when compared to its sector median. It has a gross margin of 22%, which is below its sector median's gross margin of 49%. However, the company is growing faster than its sector median, with revenue growth of 51%, compared to its sector median of 17%, which means that hope is still possible.
The factors above can potentially help Kaleyra on the long run. I personally believe that strong product offering, scalability, and flexibility is what Kaleyra currently possesses. You may have noticed that I have been focused on the future; however, let's shift our focus to the present and discuss what is currently happening. Although having an idea of the potential opportunities is plentiful, let's talk more about Kaleyra's strengths and weaknesses, discuss the industry, and the growth drivers that can affect Kaleyra's growth as a company.
The Chase of 5G and Digitalization Is Key To Growth
Statista - Spending On Digital Transformation Technologies
Digital transformation is adopting digital technology to change how businesses operate and deliver value to customers fundamentally. Integrating digital technology into all business areas fundamentally changes how the company uses and provides customer value. In 2022, global digital transformation spending was $1.59 trillion in 2021, and is forecasted to reach $1.8 trillion, a big market to penetrate, with expectations for it to grow in the following years since its forecasted to reach $3.7 trillion by 2030 at a 23.6% CAGR which is a high CAGR to consider for an industry that's pretty hard to enter due to increased numbers of entrants and competition.
One key aspect of digital transformation is using cloud-based communications platforms as a service (CPaaS). CPaaS companies provide a platform that allows businesses to easily integrate real-time communication capabilities, such as voice, messaging, and video, into their existing applications and systems. Several factors are driving the growth of CPaaS companies in digital transformation:
Kaleyra - Q3'22 SEC Filings
Increased demand for real-time communication: With the rise of remote work and the shift to digital communication, there is an increasing demand for real-time communication tools that enable businesses to stay connected and collaborate effectively. By looking at the image above, we can see that revenue in the US grew by 42% and Europe by 307%, which means demands in US and Europe is increasing. Despite the growth in other geographic regions, the company's revenue decreased by 1% due to reduced demands in India and Italy.
Ease of integration: CPaaS platforms are designed to be easy to integrate into existing business systems, which makes it simpler for businesses to adopt and implement them. Why do I think the "Chase of 5G" is necessary? Access to 5G speeds will give businesses faster customer data transfer speeds. This often means better stability during voice and video calls, which typically would mean a better customer experience. Additionally, products and services such as Chatbots can help businesses reduce labor costs by using AI-powered bots to answer customer questions. Kaleyra's features, such as API Integration, will make it easier for the company to understand its customers by processing data efficiently.
Overall, I believe that digitalization and 5G integration will be prevalent in the future, increasing the demands of communication platforms, products, and services that Kaleyra offers. Combined with the company's expanding its geographical footprint:
Our geographical footprint continues to expand into a healthy global balance that we will look to build on moving forward, especially, with Tier 1 mobile operators and enterprise customers.
- Dario Calogero Kaleyra Q3'22 Earnings Call
Kaleyra can potentially acquire more customers in different locations and is well-positioned for growth. Specifically, creating more opportunities to acquire clients such as the Fincons Group, which has a long-term relationship with Flowe. This is why I think this is the start of the company's ability to acquire partnerships.
Kaleyra's Partnership with Fincons and Flowe
On December 2022, Kaleyra partnered with Fincons Group and Flowe, an Italian digital bank, to integrate Kaleyra Video, its proprietary audio, and video solution, into Flowe's mobile application. The collaboration has enabled Flowe to offer its customers a personalized and secure experience by using Kaleyra Video to improve customer identification and fraud detection processes.
The integration of Kaleyra Video allows Flowe's bankers to initiate and manage digital collaboration interactions with customers from within their app, improving the response rate and reinforcing trust in their services. The branded calls sent from Flowe's app also help customers immediately recognize a contact request from bank staff, reducing the risk of vishing attacks. Additionally, the Kaleyra Video click-to-call feature allows users to connect with the bank in just one click from Flowe's app without disclosing personal data, ensuring an outstanding user experience.
Additionally, I think this partnership with Flowe and Fincons Group will contribute to Kaleyra's growth as a company in several ways:
It expands Kaleyra's presence in the financial services sector, a significant market with a growing demand for secure and reliable communication solutions. By partnering with Flowe, a new-age digital bank in Italy, Kaleyra can showcase its capabilities and reach a broader customer base.
This partnership proves Kaleyra's ability to acquire partnerships and customers, demonstrating its competitiveness and value proposition in the market.
If Kaleyra continues to acquire new partners and customers, it will further strengthen its position as a leading provider of communication services, which can lead to further growth and success for the company.
Overall, I believe this partnership with Flowe and Fincons Group is a strategic move for Kaleyra as it expands its presence in the financial services sector and continues growing its platform and customer base. It also aligns with Kaleyra's mission of providing safe and secure communication services to its clients. The importance of cybersecurity and privacy, especially in the banking and financial services sector, is increasing, and partnering with companies like Flowe and Fincons Group that prioritize these values can help Kaleyra build trust and credibility with its customers.
Financial Analysis
Financial strength is essential for CPaaS businesses because it allows them to weather economic downturns, invest in new technologies and services, and meet financial obligations, such as paying employee salaries and vendor bills. A financially strong CPaaS business is also more attractive to customers and partners, as it can provide higher stability and security. Additionally, strong financials can give a CPaaS business the ability to pursue growth opportunities and expand its market presence.