Venture: iMoney’s journey toward profitability

This article first appeared in The Edge Malaysia Weekly, on April 3, 2017 - April 09, 2017.

There’s only so much money you can raise. At some point, you have to deliver returns.” — Lee

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START-ups and profitability — these are two words that are seldom in the same sentence.

Most start-ups, especially in the earlier stages, spend a lot of energy and resources chasing market share and valuations. Boring old profitability is less talked about.

iMoney Group co-founder and CEO Lee Ching Wei admits that in the earlier days,  it too made that mistake of chasing valuations.

“In the first rounds, we thought valuation was everything. But we very quickly realised that it is not a sustainable model. If it’s not profitable, you cannot sustain it.

“There’s only so much money you can raise. At some point, you have to deliver returns,” Lee tells The Edge Malaysia.

But after a five-year journey, the Malaysia-headquartered online financial comparisons site is now profitable on a gross level.

“At a net level, we are still not profitable but we are heading there. Realistically, it’ll probably be by the end of this year.

“We know we can be even more profitable, we just have to cut off things that are not as profitable, right? But we have to strike a balance as there’s also a need for investing (earnings) into areas that make sense,” Lee says.

iMoney Group’s revenue has been steadily growing, judging by its income statements filed with the Companies Commission Malaysia under its Intelligent Money Sdn Bhd entity.

Revenue for FY2015 ended Dec 31, 2015, more than doubled to RM5.86 million from RM2.29 million in FY2014. Pre-tax losses for FY2015, however, widened to RM9.08 million from RM6.1 million in FY2014.

Its earnings for FY2016 have yet to be filed.

iMoney Group certainly did not get close to profitably overnight. It started off in Malaysia with a grand total of three employees. Today, it is present in six markets in the region and has a staff size of over 160.

In the first couple of years, it was still trying to find its way around gaining traction and getting the business model right. The group turned gross profitable as early as January 2016, driven by unsecured products like credit cards and personal loans as well as broadband.

“All our verticals were profitable by February 2016. Then it was about profit margins,” Lee says.

iMoney Group employs a strict definition when it comes to calculating its gross profit margins.

“Some start-ups or companies don’t take into account marketing cost. They think of it as investment but if you are paying money to drive customers in, you should count it as a cost. So gross profit for us is true gross profit. It’s the way a sophisticated investor would look at it,” Lee says.

Group-wide, iMoney Group’s gross profit margins is in the 40% region, which Lee says is not easy to achieve.

Still, more can be done going by the performance of its 23% investor, the Australian-listed online comparisons site iSelect Ltd, which sees gross profit margins of about 55% or more.

Malaysia is by far the largest contributor to iMoney Group’s earnings, bringing in over 50% of revenue. The Philippines and Indonesia, meanwhile, average about 20% each while the remainder comes from Singapore. Lee expects this mix to remain in the next year.

Younger markets, such as the Philippines and Indonesia, also saw strong growth, albeit from a lower base.

“In Malaysia, we had a two-year head start so it’s all about growing. In markets like the Philippines and Indonesia, there’s still a degree of building involved and we do not have as many verticals there as well,” Lee says.

“For this year, the mission is to continue to be profitable and try to stretch the margin but more importantly, grow revenues,” he says.

iMoney Group gets paid on several models. There’s the lead generation model where they get paid for a referral and/or a bonus when a customer successfully signs with a bank or product provider.

Increasingly, iMoney Group is operating on a concierge model where it helps consumers throughout the sign-up process.

For example, a user shopping for a broadband package may go to iMoney’s website and leave their details. iMoney Group’s broadband consultant will then call and help the user through the entire application process until the appointment is made for the broadband to be installed.

“When the broadband is installed, we get paid. So, it is a success-based referral model,” Lee says.

Lee speaks at length about how iMoney Group tracks its business to the granular level and a lot of it is data-driven.

“We have this giant spreadsheet that tracks each vertical: by channel, by cost and the conversion rates. For example, if this month is a tough month and broadband installations are down, we will know which channel drove it and what we need to do to improve on that.”

These days, iMoney Group takes a more serious look at the metrics with which it measures its own performance. Lee prefers to avoid what he says are “vanity metrics”, such as visitors and page views.

The numbers that matter to him instead are leads generated, conversion rates and of course, profitability.

“If you ask any of our management team members, what’s the number one metric, it’s gross profit.

“We know if we continue to drive gross profit, that gets invested into the business and we are closer to being profitable at a group level,” he says.

With profitability as an end goal, then it is all about building strategies and pillars to work toward that goal.

At the group level, iMoney Group generated over 1.3 million leads for financial and broadband products last year, more than doubling the 600,000 leads it generated in 2015.

Apart from knowing, Lee stresses the need to be disciplined and almost ruthless when deciding what to invest in and when to pull back. “It’s about being in a position to make hard decisions and say ‘Look, this is just not working out’. So let’s no longer invest in this or try to reallocate our resources,” he says.

He discloses that iMoney Group’s internal targets are to run at between 40% and 50% gross margins across verticals. And they try to keep marketing, or customer acquisition costs, to about half of their overall cost of revenue generation.

“We try to make sure we are profitable on the first transaction, then it becomes a bonus if someone comes back and applies for a second product. We manage this on a blended basis,” he says.

For now, iMoney Group has not yet killed any verticals that were not yielding the expected results. But Lee admits that they had to scale down on certain campaigns or verticals that were not bringing in the returns.

One example was in the home loans vertical which saw slower growth when the property market reached a peak frenzy and lenders started tightening credit access.

“It became really hard to make the numbers work even if you spend money to acquire traffic. So we decided to target whatever numbers comes to us, which is still a substantial portion. It’s just that it’s not something we could potentially grow a lot faster,” Lee says.

And so, iMoney Group turned its focus to broadband products comparisons as the market had reached a point where there were enough broadband providers offering a bigger range of products that enabled consumers to choose between different products.

“One element you don’t have with broadband is credit approval, so it makes it easier … we are helped by the fact that there are more providers now launching fixed and mobile broadband,” he says.

This move paid off for iMoney Group. Lee says that the broadband vertical, which offers good margins, is expected to drive a lot of the group’s growth over the next two or three years.

He says that iMoney will not launch in new countries in the near future but focus on drilling deeper in its high-growth potential markets, particularly Indonesia and the Philippines.

“In the newer markets like Indonesia and the Philippines, it’s about replicating what works here ... broadband is an example. In Malaysia, we want to continue to drive broadband and insurance when the time is right”.

Lee expects that credit card and personal loan products will continue to drive some growth for the group. Insurance is not quite ready, especially in the Philippines and Indonesia, and to a certain extent, even Malaysia, which is already in the midst of industry liberalisation.

For 2017, Lee says iMoney Group will focus on growing its various verticals and invest more on marketing to build its brand to becoming a household name.

“The big opportunity for me is we haven’t really tapped our potential. Yes, we are five years old and we don’t have a risk of failing anymore compared with the earlier stage start-ups.

“But I think when you go out and ask people ‘What is iMoney?’, you still don’t get the recognition like AirAsia or other big brand names. It requires investment but when we get there, the business will be in a totally different stage,” Lee says.