With $150M Capital Infusion, Jumio Could Go Public
These days it’s more important than ever to verify the identity of the person on the other end of a digital transaction.
The market for such digital identity verification tops $10 billion. Yet the one publicly-traded pure play, San Diego-based Mitek Systems, has a mere $101 million in revenue in 2020 — with shares up a whopping 98% in the year ending April 2.
A privately held player, Palo Alto-based Jumio (short for Just Use My ID Online), employs nearly five times more people and seems to have the financial profile needed to go public — particularly after its recent $150 million capital infusion.
I would like to see a Jumio prospectus before investing in this industry because I suspect the company is far larger and faster-growing than Mitek.
(I have no financial interest in the securities mentioned in this post).
Mitek’s Solid First Quarter Report
360 employee Mitek MITK Systems supplies “mobile capture and identity verification software” for over solutions for “7,500 financial services organizations and leading marketplace and financial technology brands enterprises,” according to Morningstar.
Consumers use its Mitek’s Mobile Deposit service for mobile check deposits; enterprises use its Mobile Verify to verify a user’s online identity; and financial institutions use its CheckReader service to extract check image data from “branch, ATM, RDC, and mobile” check deposit channels.
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Mitek’s growth is slowing down. In 2020, it generated $101 million in revenue which represented a three year compound average growth rate of nearly 31%, according to Morningstar.
In its fiscal first quarter ending December 30, Mitek reported 18% revenue growth. According to GlobeNewswire, its first quarter revenue reached $26 million; net income was $2.2 million and cash flow from operations totaled $8.7 million.
Mitek did not offer guidance for 2021. As CEO Max Carnecchia said in Mitek’s Q1 conference call, “We withdrew the guidance along with, I think, the overwhelming majority of Russell 2000 companies back in the March-April time frame” and he declined to offer new guidance when asked by analysts.
Mitek was delighted by its first quarter results. As Carnecchia told GlobeNewswire, “We are very pleased with our strong start to fiscal 2021, with 40% growth in our identity verification revenue in the first quarter driven by expansion of existing customer relationships and new business. Our deposit solutions also continue to see increasing consumer adoption as transacting online is becoming imperative in today’s world.”
Jumio’s Rocky Past And Bright Future
Jumio — whose service verifies online identity by comparing a government-issued ID to a selfie — sports a rocky past and what looks to me like a bright future.
On March 23, Jumio announced that it had closed a $150 million funding round — which it says is the largest in the history of the digital identity verification industry.
As I wrote in July 2018, McKinsey estimated in 2018 that the industry would reach $10 billion in revenues that year and grow to between $16 billion and $20 billion by 2022.
But Jumio was not always such a capital magnet. It was founded in 2010 and filed for bankruptcy in 2016 after a new CEO, Steve Stuut, took over in May 2015 when founder, Daniel Mattes, departed.
Stuut told me the books were improperly kept. That December, Jumio restated 2013 and 2014 results. It filed for bankruptcy in March 2016 and emerged in May 2016 — raising $15 million in venture capital that August.
By July 2018, Stuut told me Jumio’s top line was growing. As he said, “Bookings from the third quarter of 2016 to the second quarter of 2017 were $26 million. Between the third quarter of 2017 and the second quarter of 2018 bookings were $91 million. Annual recurring revenues [were up 289%] from $18 million in the second quarter of 2016 to $70 million in the second quarter of 2018.”
Fast forward to April 2021 and things seem to be going very well at Jumio.
For one thing, Jumio sees itself dominating a fast-growing market. In an April 1 interview Jumio CEO, Robert Prigge (Stuut became chairman in March 2019) said, “Identity verification is a $10 billion or large industry growing at a CAGR ranging from 15% to 19%.”
Covid-19 has been good for its business. “Over the last two or three years we have gone from anonymity to identity. Due to Covid-19 all business is contactless. It is essential to establish trust remotely. We verify identities by comparing a government-issued identification card picture with a photo of your face. That is necessary because all of my private information has been hacked. We use 4,000 different kinds of identification cards in 200 countries,” he said.
Jumio — which aims to eliminate and eradicate identity theft — sees Mitek as a small player. As Prigge said, “We compete with Mitek — but they are a fraction of our business. We win because we have the highest level of quality, the best artificial intelligence and machine learning. We have completed 350 million identity verification transactions. Two years ago, it was more of a niche market. But with vaccine passports and delivery services — for example, you must make sure you are not delivering alcohol to a minor — identity verification has become he cornerstone of the Internet.”
Jumio says its revenues top $100 million. “Revenues are over $100 million and we are growing at over 50% a year. We have 1,500 employees worldwide. We have not taken investment in five years. The time is right for us to release automated offerings which will accelerate our growth,” he said.
Prigge plans to invest the $150 million in four areas:
- More artificial intelligence for Jumio Go
- KYx (Know your patients, rider — e.g., for an Uber UBER driver, partner, and/or employee)
- We acquired a machine learning company — Beam Solutions
- Doubling down on sales and marketing.
Can Jumio keep growing fast? I’d guess the answer depends on how well it follows six management principles. Here are the principles and what Jumio does about them.
Empower People Closest to the Customers
When a company requires that all customer-facing decisions be reviewed and monitored by top executives before they can be carried out, it is at risk of losing ground to rivals that empower people closest to the customers to decide and act.
Jumio is more like one of those fast-growing upstarts. That’s because its culture puts a premium on empowerment — coupled with clearly communicated goals.
As Prigge explained, “The acronym for our culture is IDEAL (Integrity, Diversity, Empowerment, Accountability, and Leading Innovation). People need to be empowered and we all need to be on the same page in terms of the mission, goals and key performance indicators — all of which must be clearly communicated. In emergencies, we empower the team to do what’s best for the customer. In a steady state, the team and the extended leadership team — 30 to 40 vice presidents and above — get involved.”
Attract, Motivate, and Reward Talent
If you hire. motivate, and reward the best talent available, you ought to be able to win customers more effectively than rivals with weaker teams.
Jumio is aiming to have a winning team. “Our number one asset is our human capital. During interviews, we go after people with good cultural fit. We have a no asshole rule. To make a good case they should tell us who they are, why they will grow here, and how they will help,” Prigge said.
Glassdoor gives the company good ratings. As of March 26, Jumio was rated 4/5 stars based on 100 reviews. 92% approved of Prigge’s performance as CEO, 80% said they would recommend the company to a friend. To be sure, some reviewers saw the opportunity for Jumio to improve its processes improvements and benefits — such as providing 401(k)s and catered lunches.
Empowering top talent can make a huge difference in long-term growth if that talent comes up with new products that customers lap up.
Jumio aims to innovate in many ways. As he said, “Innovation does not happen with engineers working in isolation — it is driven through interaction with customers. We have quarterly meetings with customer, a customer advisory council, and product teams with customers. We ask them what their business problems are and what they will need in 2021 and 2022. Our two platforms came from these conversations.”
Hold People Accountable
Companies are under relentless pressure to achieve ambitious results. If they can set big goals and hold everyone accountable for meeting them, they can keep growing fast.
Jumio invests considerable effort to do that. “We set goals and key performance indicators each quarter. We use special software. We ask each team how they will support the three to five major goals. Each department will support them. Sales has more to do on the ground, human resources manages our talent, engineering develops new technologies. We communicate all the top goals,” Prigge said.
For a large organization maintain the agility of a small company, it needs to make sure that process does not become more important than achieving its corporate goals.
Jumio is striving to keep bureaucracy from taking on a life of its own. As Prigge said, “We hustle and move fast. We focus more on the goal than on bureaucracy. We hired people who have managed multibillion dollar businesses and we recognize when bureaucracy is starting to creep in.”
To that end, Jumio makes decisions with 70% to 80% of the information. “We look at perfect as the enemy of good. We want to accomplish things. We don’t work for process. If that starts to happen, we have flashbacks to working at bigger companies. We don’t want to be a company that suffers from analysis paralysis that someone feels they have to do to prove they’re right.”
Jumio’s investors would probably enjoy getting a return on their capital. If Jumio decides to go public, we will have a better look at its financial results and be better armed to assess whether it will keep growing fast — and therefore be a compelling long-term investment.