Spider Plus (4192) | First Look

Spider Plus (4192) | Quick Look

Share price ¥1,800 | Market cap: $560m | EV/Rev 29x

SpiderPlus is a leading construction technology (ConTech) in Japan. Founded in 2011, SpiderPlus provides construction management software to over 900 contractors, which is cloud-based and allows for the centralized management of site drawings, construction photographs, and inspection records at construction sites. By reducing the time spent on an inspection by 2-3 hours per day, Spider's software reduces the cost of the average on-site inspection.

Recent results

At the end of March, SpiderPlus had registered 884 corporate clients (+61% YoY). Among the key KPIs to watch is the number of IDs, which has risen from 30,805 a year ago to 40,407 now. As it takes two to three years for a company to reach its maximum number of IDs after signing a contract, we expect continued strong ID growth in the coming years. The ARR rose by 38% to ¥1,753m, on the back of the ID growth and a 5% rise in ARPU.

MODEL

Spider provides Software as a Service (SaaS) for Japanese construction companies. It helps manage the entire project process from a mobile device, making it easier to deliver projects on time and on budget. By providing a unified view of the project, the project team can understand exactly what needs to be done each day to avoid rework and cost overruns.

Spider is an easy-to-use software program for managing building sites, providing several essential features, including drawing management, photograph management, and report generation. The basic package costs ¥3,000 per user, but there are also additional packages for general contractors (pile installation, finishing inspections); electrical subcontractors (electronic testing, illumination measurements); and air conditioning subcontractors (airflow measurement, sound levels, etc.).

One of the most significant benefits of using SpiderPlus is that it can vastly reduce the time spent on on-site inspections, assembling photographs, and generating reports. The company estimates that it could save up to ¥150,000 in monthly time savings for a typical worker.

MARKET

Japan's construction industry faces demographic challenges and a shortage of skilled workers. Additionally, construction workers work longer hours than most workers in other industries, and this is now an important issue given that a cap is in place on overtime work under the "Work Style Reform" law. In an effort to ensure a better work-life balance, the Japan Federation of Construction Contractors aims to establish a 5-day work week at all construction sites by March 2022. Industry players are increasingly embracing Digital Transformation (DX) due to these economic factors. Over the past five years, the overall market grew by 3.7x and management believes that rate will continue for the next five years.

Japan's ConTech market is estimated to be around $9billion, which includes building construction, civil engineering, and detached housing. SpiderPlus targets all employees in the $4b building construction industry. This TAM can be further narrowed into a Service Obtainable Market (SOM) for site foreman, which is estimated at around $250m. Compared with SpiderPlus' annual recurring revenue of $15m, there is plenty of room for growth.

MOAT

The competitive advantages or moat is what differentiates a software company from the competition and drive share gains in their respective market. Over the past decade, SpiderPlus has built a significant technological advantage. Spider continues to add features to its core product to address new verticals such as air-conditioning and electrical engineers. With a comprehensive set of features that are easy to use, SpiderPlus can serve as a central platform for all contractors working on a particular job (builders, electricians, sanitation specialists, interior designers, etc.) With a strong customer support structure, SpiderPlus provides site briefings and support, as well as collecting customer feedback that is incorporated into future R&D. As more internal and external users use SpiderPlus on a specific project, the more information value is created for everyone involved.

There is a significant customer base for SpiderPlus in Japan, and many general contractors and subcontractors have already adopted the platform. Clients usually introduce the system on specific projects, starting with just a few users. After two or three years, SpiderPlus has observed a significant rise in IDs, suggesting that the product is sticky and has low churn.

MANAGEMENT

The company's current CEO and founder, Kenji Ito, has a background in the construction industry. He founded SpiderPlus in 2000, and his core software business was launched in 2010. This year, the company went public on the Mothers market, raising around $45 million.

Considering that the market for construction software has just begun to flourish, management is focusing on growing revenues rather than profit in the short term. For example, the company aired a TV commercial in Q1 featuring some well-known companies in order to generate incoming inquiries. This TV advertisement resulted in the S&M spend jumping from 24% of sales to 65% in the most recent quarter, which created a ¥138m loss in operating income. At this point, we believe that customer acquisition is more important than profitability due to the low penetration of the market. In addition, the company has been investing in increasing product functionality, and $3 million is earmarked this year for a new user interface and software multilingualization, potentially opening doors to expansion into Asia.

VALUATION

We compare SpiderPlus with the larger SaaS companies in our Japan Disruptive Innovation index. Given the early stage growth, we prefer to look at EV/REV as a guide to valuation. The EV/REV multiple of 29x is in line with the peers, but the growth in revenue is a bit weaker (although the SpiderPlus ARR grew at 38% last year). Nevertheless, given the early stage of adoption in the ConTech market, low penetration, and potential market size, SpiderPlus is well worth watching.