Key Takeaways:
GoFintech's revenue soared 47 times year-on-year in the six months to September, as it returned to profitability
The big revenue gain largely owed to new supply chain brokerage services, but margins for the new business are razor-thin
Revenue growth sometimes comes at the expense of profit margins. A textbook, and somewhat extreme, case of this not-so-desirable dynamic comes from GoFintech Quantum Innovation Ltd. (0290.HK).
Last Friday, the provider of a range of financial services reported that its revenue soared by a factor of 46 to HK$1 billion ($128 million) in the six months to September, the first half of its fiscal year, from just HK$22 million a year earlier. Adding to the good news, the company also returned to the black after losing money a year earlier, putting it on course to record its first annual profit since 2017, when it was known as China Fortune Financial Group.
As impressive as they seem at first glance, the results might leave many scratching their heads initially. GoFintech's gross profit grew less than fivefold in the latest six-month period, which on its own looks big, but pales in comparison with the huge revenue jump. The big gap owes to a sharp erosion of its margins.
GoFintech's gross profit margin crashed to 6.6% during the first half of its fiscal year from 75% a year earlier. The main culprit was the company's recent foray into supply chain services dating from October last year. Although it's a brand new area for GoFintech, it accounted for more than 90% of the company's revenue in the first half this fiscal year, showing the young business has ramped up rapidly.
That's promising for anyone waiting for GoFintech to build up the kind of scale needed to justify its market value, which ...
