Catapult provides elite sporting organisations and athletes with detailed, real-time data and analytics to monitor and measure athletes. The founders behind Catapult invented this technology category in the early 2000s, in partnership with the Australian Institute of Sport (AIS) to monitor and track the physiological performance of elite athletes.
Sports analytics company Catapult Group International (CAT) has made a strong impression on the Australian Securities Exchange (ASX) since it raised $12 million and listed in December 2014.
Shares in Catapult, which makes wearables sport technology for elite athletes, issued shares at 55 cents. By August 2016, the shares had soared to $4.29, but CAT has come back to $2.35, which capitalises the company at $538 million.
That’s not bad for a company that is yet to make a profit.
Catapult provides elite sporting organisations and athletes with detailed, real-time data and analytics to monitor and measure athletes. The founders behind Catapult invented this technology category in the early 2000s, in partnership with the Australian Institute of Sport (AIS) to monitor and track the physiological performance of elite athletes.
Catapult had its beginnings in the Cooperative Research Centres (CRC) program, which was established in 1990 to enhance Australia’s industrial, commercial and economic growth. Catapult’s founders, Shaun Holthouse (the current CEO) and Igor van de Griendt, led a team of CRC researchers deploying emerging micro-technology in unprecedented ways. They began a project with the Australian Institute of Sport (AIS), which wanted to measure all facets of athlete physical performance. Holthouse and van de Griendt and their team developed wearable sensors to pick up data on how the athletes moved.
From this work, Catapult was established in 2006 to develop its proprietary athlete analytics tools. Today, Catapult’s solutions are used by about 1,250 teams around the world, in 25 sports, making the company the world market leader by some distance.
Catapult’s clients span professional leagues in sports as diverse as Australian Rules football, rugby, rugby league, soccer, cricket, basketball, ice hockey, lacrosse, handball, and many more. Catapult specialises in signing “league-wide” deals: its customers include all teams in the Australian Football League (AFL), National Rugby League (NRL), National Basketball League (NBL), the Australian Rugby Union (ARU), Super Rugby and Cricket Australia, and the majority of teams in national leagues like the NFL (National Football League) and NBA (National Basketball Association) in the United States. The company also has clients in dozens of NCAA (National Collegiate Athletic Association) college sport programs in the US, and elite football teams in Europe, Asia, the Middle East, and South America.
These sporting organisations use the data Catapult collects to assist in skills development, the team’s tactical and strategic training, game analysis and planning, player performance analysis, fitness, injury reduction and rehabilitation, opponent scouting, player education, recruiting and list management. It can also be used in fan engagement, and social media strategies.
Catapult started out with a range of hardware and software solutions across its two brands, Catapult and GPSports. Catapult sells elite sporting organisations a software platform, OpenField, and a range of analytical tools to use and analyse the data: its Elite hardware units are sold on a subscription basis. The customers are sporting teams that have significant sports science programs and dedicated data analysts.
The GPSports brand gives clients a suite of standardised reports and requires minimal operator involvement. These clients want a sports analytics solution, but don’t necessarily have the dedicated resources to invest in the customisation of analytical tools offered under the Catapult brand.
The company’s strategy was to target the elite sports market, and become the market leader in wearable technology for elite athletes. The technology suited this market, and the global sports industry is a very deep-pocketed one. Then, Catapult planned to use this expertise and the “halo effect” of top-brand clients to expand into the sub-elite sporting market – what it calls the “prosumer” market – which the company estimates to be up to 20 times the size of the elite market. After that there is the consumer market, which is even larger again.
In July 2016, catapult made two important acquisitions. The first was a US company called XOS Technologies, the US market leader in digital and video analytic software for elite sports, with more than 400 professional or elite sporting team clients in North America. XOS was an important step for Catapult, because integrated video and player performance data is arguably the holy grail of sports analytics: the combination of the two world-leading platforms – Catapult’s player performance data and XOS’ video analytics – positions Catapult ideally to develop an integrated video and data solution.
Where the Catapult/GPSports wearable analytics technology is typically sold to the fitness side of coaching, XOS’ video analytics is typically sold to the tactical side. Catapult completed the integration of XOS last month, and the synergy benefits should start to flow this year.
The second was an Irish company with a product called PlayerTek, a wearable analytics solution that it sells to the prosumer market. While smaller in scale than XOS, PlayerTek represented a proven, commercialised application that was selling into the market. PlayerTek and its position in the prosumer market greatly expands Catapult’s global addressable market.
The next step for Catapult will be the consumer market. A chief executive officer for the consumer division was appointed in 2016: Catapult is working on developing its brand positioning and go-to-market strategy.
The company is also only just getting started with developing a revenue stream it calls data monetisation, in which the data it collects can be streamed on broadcast, or through apps, to allow fans to interact with the games as they occur. A good example is Catapult’s deal with Australia’s NBL, which display Catapult’s in-game data through live on-screen graphics during game-day broadcasts, allowing fans to track player movement and workload. In all sports, the company believes that fans want to be as closely involved in the game as possible, not just watching the players run and tackle and shoot, but seeing instantly how far, with what strength and with what velocity. Further out, sport betting could be a big market for this aspect of the technology, too.
The half-year ended 30 December 2016 was an important period for Catapult. Total revenue grew by 250% to $24.8 million, with XOS contributing $14.1 million of that. Elite wearables revenue rose 51%, to $10.7 million with the subscription base growing by 93%, to 11,125 units – Catapult says it has only penetrated 20% of the global addressable market.
The company says XOS made a strong contribution to revenue, with most of that coming from a software-as-a-service (SaaS)/subscription model, with $27.6 million of annualised recurring revenue (ARR) as at December 2016. The PlayerTek pilot demonstrated the appetite for prosumer product, with 1,146 units sold in the half. On a company-wide basis, ARR ended the December half at $44.7 million, up 375% in the past twelve months.
All of this contributed to Catapult moving into positive cash flow, and profitability at EBITDA (earnings before interest, tax, depreciation and amortisation) level, for the first time, in the December half.
The next step will be net profit. The company has made no predictions on when this will be achieved: its guidance deals only in revenue, which it has foreshadowed will come in at $61 million–$65.5 million in FY17, which would represent a rise of 21%–30%, and a “small< positive underlying EBITDA. The analysts that follow Catapult do not see net profit happening in FY17: they see, on consensus, a loss of 0.5 cents a share. But in FY18, the analysts see Catapult earning 1.9 cents a share.
At $2.30, that would price Catapult at 121 times expected FY18 earnings – a ridiculous number. But the point of a stock like Catapult is that it does not suit being measured on price/earnings (P/E) ratio at this stage in its life. It is a high-growth business, with its strategy for the prosumer and data monetisation markets only just being rolled out – and the entry into the consumer market still over the horizon.
Not yet being profitable, Catapult is obviously a higher-risk investment, but its technology sees it right at the forefront of a rapidly growing global market. To a great extent an investor now is buying the stock on trust. One consolation – and it’s an important one – is that the analysts who follow the stock are convinced that Catapult is on a winner. They see the stock at a consensus price target of $3.50: if that’s reached, you will have made a 52% capital gain from here.
One of them – Morgans – actually lifted its price target last week to $4.43, implying that an investor now could expect the stock to almost double. Morgans expects further league-wide deals to be signed by the end of this financial year, flowing into a boost to recurring revenue from FY18 onward.
Australians love their sport: with Catapult, they can invest in it, too. And if you believe the analysts, they can do very profitably indeed.
