STARTENGINE Q2 RESULTS

A WORD FROM TURANT AI…

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STARTENGINE Q2 GOES BOOM

Q2 has actually been a really rough time for StartEngine in the past few years.

Revenue declined in both 2022 and 2023, dipping as low as $4.7M.

That’s about as bad as it gets for a company that last raised on a billion dollar valuation (would indicate 70x revenue).

But StartEngine bag holders may not need to fret - the company surged ahead in 2024 Q2, bringing in a whopping $11.9M.

I mean, look at this chart, it’s a complete turnaround for the company after two years of decline:

I have to give credit to StartEngine because they tested lots of new offerings to unlock this growth.

Venture Club (formerly StartEngine Owner’s Bonus) + StartEngine Private were two of the new offerings that are really humming along now.

Not everything they tested worked - StartEngine collectables failed to build momentum. But leadership identified this and shut down that part of the business fairly rapidly.

EXCLUSIVE DEALS SPUR GROWTH

The headline for this quarter really is StartEngine Private. For those unfamiliar with Private, here’s how it works.

1. StartEngine will acquire stock in big name startups. Usually, early employees & investors who want liquidity now instead of waiting for a future IPO will sell it to them.

2. StartEngine then lists the shares on their platform for accredited investors to buy

3. StartEngine takes 20% carry, which means if the eventual sale of the stock yields $1,000,000 in profits, StartEngine gets to keep $200,000 (20%)

StartEngine’s been able to get some big names for Private - Liquid Death, Ramp, and Epic Games have all been listed on the site.

And because these are big-name companies, the offerings tend to sell out with minimal effort on StartEngine’s end.

We can tell this from the company’s marketing expenses. StartEngine increased advertising spend by $246k YoY, but topline growth far outpaced this by ballooning $7.2M.

In Q2 of 2023, StartEngine Private had yet to exist. One year later, the company is doing $6.8M in quarterly revenue.

This is a lower-margin business (which I explain here), but it’s got scale and still brings in 38% margins.

I also believe that Private will spur growth in other segments of the business, most notably Venture Club.

Private deals sell out quick, and Venture Club members receive 48-hour priority access to them. The competitive nature of these deals may convince users to upgrade to Venture Club for better access.

VENTURE CLUB VENTURES HIGHER

 Venture Club - a $275 premium membership that unlocks perks & priority access - is a sleeping giant.

In my opinion, this is probably the single-greatest move that the company has made.

Members get an array of awesome perks - that cost StartEngine nothing.

• 10% bonus shares on select investments (StartEngine makes the startups foot this if they opt in)

• Early access to Private offerings

• Priority on investor waitlists

• Dedicated Investor Support (okay this one might cost like $80k, but that’s about it)

This barely costs StartEngine anything, and it brings the added benefit of deepening loyalty with investors.

It’s nearly a 100% profit margin segment of their business and it has been growing!

The most recent report indicates $1.4M in revenue, a healthy 52% increase YoY. You can essentially move that $1.4M to the bottom line, that’s how profitable I believe this segment is.

THE CORE IS INTACT

StartEngine’s Regulation Crowdfunding segment was something that I was really worried about coming into this report.

It started out as the company’s core product but had been struggling amid a tough funding environment.

StartEngine was able to get back into growth mode for the quarter, driving revenues here 18% higher to $2.7M.

Because of the way Private/Reg CF is reported, it looks like this isn’t a large part of the business. But margins here are much higher, and so this is still a vital component of StartEngine.

WHEN WILL STARTENGINE BE PROFITABLE?

StartEngine is not profitable, but losses narrowed from $3.6M → $3M.

There’s also 2 positive indicators brewing under the surface.

1. StartEngine acquired SeedInvest and has been writing down the value of this investment each quarter to the tune of $900k. This isn’t actually literal money that is being lost, it’s more of a tax strategy to reduce their tax liability (more on this here). This will go on until 2030, so accounting for this the quarter loss was actually closer to $2.1M.

2. StartEngine is sitting on a mountain of company stock that it has received from each company on its platform. They have conservatively estimated this stockpile (get it?) at $9.3M. This could expand exponentially if some of the companies (cough cough, AtomBeam) have a major exit.

StartEngine’s profitability outlook is better than it seems, but I would recommend patience for those expecting immediate profits.

Outside of outlier quarters, I project that annual profitability probably won’t be achieved until 2026 the earliest.

StartEngine is sitting on $10.9M in cash with plenty of financing opportunities, so I don’t foresee this timeline being a major issue.

Overall, a bangup quarter with lots to be excited about.