Netcapital Inc. (NCPLW), a fintech company with a scalable technology platform, has faced a challenging economic environment in its latest fiscal year. The company's financial results for the full-year fiscal 2024 reflect the impact of this challenging landscape, with revenues decreasing by 42% to $4,951,435 and a net loss of $4,986,317.

Business Overview

Despite these headwinds, Netcapital has continued to execute on its strategic priorities, focusing on initiatives that position the company for long-term success. The company's Netcapital Funding Portal, a key driver of its business, saw a 109% increase in portal fee revenues, reaching $874,368 in fiscal 2024. This growth was fueled by an increase in the average amount raised per offering, which rose from $128,170 in fiscal 2023 to $280,978 in fiscal 2024, as well as an increase in the number of successful offerings, which grew from 50 to 53 over the same period.

Netcapital's consulting subsidiary, Netcapital Advisors, experienced a decline in revenues from consulting services for equity securities, which dropped by 52% to $3.44 million in fiscal 2024. This decrease was primarily due to a reduction in the number of clients served, from six in fiscal 2023 to three in fiscal 2024. However, the company continues to view this business as a strategic asset, providing valuable services to its portfolio companies and generating equity stakes that can potentially appreciate in value over time.

Recent Developments

One of the key highlights for Netcapital in fiscal 2024 was the launch of the beta version of its secondary trading platform, developed in collaboration with Templum Markets. This platform, which is currently in internal testing, will provide investors who purchase stock through the Netcapital Funding Portal with the potential for secondary trading, allowing for improved liquidity. The company expects to open the platform to a broader group of users before the end of the current fiscal year.

In addition to the secondary trading platform, Netcapital has also announced that its wholly-owned subsidiary, Netcapital Securities, has applied for a broker-dealer license. This move is expected to create opportunities for the company to expand its revenue base by hosting and generating additional fees from Reg A+ and Reg D offerings on the Netcapital platform.

Liquidity

Netcapital's liquidity position remains a concern, as the company reported cash and cash equivalents of $863,182 as of April 30, 2024. The company's operating cash flow and free cash flow for the full-year fiscal 2024 were both negative, at -$4,879,838. To address these challenges, Netcapital has taken steps to reduce its operating expenses and continues to seek additional financing through private placements, public offerings, and/or bank financing.

Outlook

Looking ahead, Netcapital remains focused on its long-term strategy, prioritizing the success of its client companies and the growth of its platform. The company's CEO, Martin Kay, emphasized the importance of not optimizing for short-term results, but rather building a sustainable business that can create value for its stakeholders over the long run.

Financials

In the third quarter of fiscal 2024, Netcapital reported revenues of $1,042,793, a decrease of 54% compared to the same period in the prior year. This decline was primarily driven by a 56% decrease in revenues from consulting services for equity securities, which fell to $862,346 from $1,950,000 in the prior-year quarter. Funding portal revenues also decreased by 23% to $179,588 during the quarter.

The company's operating loss for the third quarter was $1,205,157, compared to an operating income of $570,577 in the same period of fiscal 2023. This was largely due to the decrease in revenues, as well as an increase in general and administrative expenses, which rose by 92% to $1,092,459.

Netcapital's liquidity position remained a concern, with working capital of $2,719,419 as of January 31, 2024. The company's cash and cash equivalents stood at $2,172,099 at the end of the third quarter, an increase from the $569,441 reported at the end of fiscal 2023.

Risks and Challenges

Despite the challenges faced in fiscal 2024, Netcapital remains committed to its long-term strategy. The company's focus on expanding its secondary trading platform and obtaining a broker-dealer license for its Netcapital Securities subsidiary are expected to create new revenue opportunities and enhance the overall value proposition for its clients and investors.

Netcapital's CEO, Martin Kay, highlighted the company's success in increasing the average amount raised per offering on the Netcapital Funding Portal, as well as the growth in the number of successful offerings. These metrics demonstrate the platform's ability to connect private companies with investors and facilitate capital raises, even in a difficult economic environment.

Looking ahead, Netcapital's management team remains cautiously optimistic about the company's prospects. The successful launch of the secondary trading platform and the potential expansion into Reg A+ and Reg D offerings through its broker-dealer subsidiary could provide new avenues for growth and diversification. However, the company's ability to achieve profitability and generate positive cash flow remains a key challenge that will require continued focus and execution.

Conclusion

Overall, Netcapital's fiscal 2024 results reflect the impact of a challenging macroeconomic landscape, but the company's strategic initiatives and long-term vision suggest that it is well-positioned to navigate these headwinds and capitalize on emerging opportunities in the fintech and private capital markets space.