A small church in my home town always struggles for funds. Like many, the country church relies on parishioners to give money and time to keep the parish going. It’s a constant struggle as the number of churchgoers dwindles and the community ages.
The church has tried different ways to encourage giving: weekly direct debits from parishioners who have children at the local church-run school, for example. That has never taken off because many prefer to put cash in the collection plate as it passes from pew to pew.
Digital collection plates may be the answer. Electronic church giving, enabled by smartphone Apps developed by ASX-listed Pushpay Holdings and others, has potential. Digital giving is widely used in the United States and more Australian churches are trialling the technology.
A San Francisco archdiocese, for example, uses technology that allows parishioners to donate money or share prayers from their computer or smartphone. Similar services let worshippers decide to make regular donations or give to a specific church project, via their phone.
“Tithing” technology is making a difference: churches that use electronic-giving technology report a lift in the size and frequency of donations. It takes time to get parishioners, particularly older ones, used to the concept. But enabling parishioners to donate in real time, via their phone, to a church project has great appeal.
The technology can do more than raise funds. A church, for example, could provide an electronic daily prayer in return for a small daily donation. Or use the smartphone App to better connect parishioners and encourage them to share prayers and support.
In time, the technology could help churches build more-connected communities and appeal to younger parishioners. Smartphone Apps also appeal to churchgoers who carry less cash, but are able to give via technology.
PushPay Holdings is an interesting play on this trend. The New Zealand-based company dual listed on ASX in October 2016 through a $54-million Initial Public Offering (IPO). Pushpay’s $2.10 issued shares have raced to $3.92, capitalising it at just over $1 billion.
Chart 1: Pushpay HoldingsSource: The Bull
Founded in 2011, Pushpay technology is used in churches, schools and charities. More than 7,000 customers, including 54 of the top 100 churches in the US, use its echurch technology. “Bible Belt” churches in US southwest and southeast have embraced the concept.
Remarkably, Pushpay processed 12.3 million transactions in the year to March 31, 2018, with an average value of US$192 over the year, across 19 countries. Average revenue per customer was US$989, from US$727 a year earlier. The technology is encouraging people to give more.
The mobile-payments App company says annualised committed monthly revenue (ACMR) – a metric favoured by software-as-a-service (SaaS) providers – rose 47 per cent to $86.4 million over the year. This is a selling point: it makes it easier for worshippers to commit to regular giving and increase it over time – literally, a Godsend for cash-strapped churches.
Pushpay charges a minimum monthly fee that increases with organisation size. Then, a small fee for each transaction made through its payments platform. That’s a powerful business model: as more churches sign up to the service, more parishioners join the network, creating snowballing growth in transaction value, of which Pushpay clips the ticket.
Pushpay’s revenue leapt from US$34.3 million in FY17 to US$70.2 million. Like other successful SaaS providers, the technology is highly scalable and the cost of adding extra users is small. Recurring, predictable revenue, due to churchgoers committing to regular giving via the technology, explains why Pushpay’s market value has skyrocketed.
Church giving in the US is big business. Giving to US religious organisations increased 3 per cent in 2017 to an estimated US$123 billion across all faith traditions, according to annual philanthropy report Giving USA. Religious organisations receive 32 per cent of US charitable giving each year, about double that given to education institutions.
Pushpay has a strong market position. It has a few large competitors and several smaller ones. With 13 of the 20 largest US churches using its technology, Pushpay is building a dominant position as the go-to technology provider for church giving.
History shows that online platforms that create a leading position benefit from a strong network effect as more customers (in this case, churches) attract more users (churchgoers), which in turn attract more customers and so on. The market expects strong growth in the volume and value of transactions processed using Pushpay technology.
The challenge with Pushpay is valuation. A billion-dollar market value for a loss-making company is a big ask, even by tech standards. The stock is not widely researched by analysts and consensus forecasts are too few to rely on.
Pushpay expects to be cashflow breakeven by the end of 2018. The long-term goal is attracting 50 per cent of the medium and large church segments, a market it says is worth more than US$1 billion in annual revenue to Pushpay.
There’s a huge addressable global market in electronic church giving and Pushpay, for all its growth so far, is only scratching the surface with US$70 million in revenue. Other growth will come as schools and charities use the technology to encourage regular giving or launch campaigns to raise money quickly for projects.
Buying Pushpay at the current price requires a leap of faith. But when you consider the industry position, the potential market size and the value proposition that electronic giving offers churches and worshippers, Pushpay warrants attention.
Pushpay shares have mostly tracked sideways this year after strong gains in 2017. Chartists will look for a sustained price breakout above $4.14 – a point of previous resistance this year – to confirm the next leg of Pushpay’s uptrend. A break below $3.50 would scare the bulls.
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• Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article, consider the appropriateness and accuracy of the information, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at May 31, 2018.