Given the massive global popularity of messaging, the market in play is enormous. Nexmo is a quickly growing company that provides carrier-direct SMS and Voice APIs that developers can use to reach phones around the world. Vying for traction in the space with competitors like Twilio, Nexmo has raised raised $3 million earlier this year, and unlike so many other young technology companies, is profitable. However, it is a somewhat quiet company.
I recently sat down with Nexmo’s CEO Tony Jamous to dig into just how quickly his company is growing, how it managed to break into the black and what its next plans are. Jamous is affable, and provided TechCrunch with far more hard numbers than most firms are willing to share. Then again, most companies don’t share, because showing off how much money you lose isn’t too flattering. Nexmo doesn’t have that problem.
I won’t be focusing on the technical aspects of Nexmo and its industry in this post. That’s a discussion for another day.
Growth
Nexmo’s revenue grew at a stable 20 percent monthly for the first half of 2013. That income directly corresponds to the firm’s 20 percent average monthly growth rate of its through-traffic during the same period.
Chronologically, Nexmo began to accelerate around the time of its most recent round of funding – the company has raised a total of $3.83 million. Jamous referred to the cash injection as a “shot in the arm.” Ask any CEO what he intends to do with a new round of funding, and her response every time is the same: Acceleration. Nexmo is no different.
Using its most recent $3 million, Nexmo grew its sales team and signed several new and large clients. But in its favor, existing customers grew in scale, directly boosting traffic through its APIs and, thus, increasing revenue.
Nexmo has been caught in a contented updraft: It counts among its customers, by its estimation, about 80 percent of the “Over-The-Top Content” message market (OTT). Line, Viber and KaKaoTalk are among the larger OTT messaging services, and they use Nexmo. The company also works with other OTT players, but asked me not publish their names, citing private contracts.
To supplement the growth in its SMS business, Nexmo began to support voice calls in June. In July, 4 million calls were sent through the new service. Jamous stated that the voice part of Nexmo grew quickly at launch because existing clients had requested it, putting demand in place from its first day in operation. Twilio, which has been in the call game far longer, recently announced that it is handling about 4 million calls daily. I don’t have Nexmo’s comparable figure. Jamous did tell me that Nexmo has handled more than 1.4 billion voice and SMS API transactions.
Voice currently comprises 7 percent of Nexmo revenue, and the company expects it to rise to 15 percent of its fourth quarter revenue.
Revenue
Nexmo had revenues of $4 million in August. That figure is more than the company has raised, to date, it’s worth noting. That revenue rate puts Nexmo at around a $50 million yearly run rate. The company will exceed that rate in 2013, provided that it continues to grow.
According to Jamous, Nexmo expects total revenue of around $40 million for calendar 2013. Twilio was tipped earlier in 2013 to be on track for about $50 million in revenue for the year, putting the companies on rough top-line parity.
Extrapolating from the August revenue figure, assuming that Nexmo grows at 5 percent monthly – a reduced pace, but one that I think is a reasonable projection – Nexmo would generate just under $9 million in top line next December. That would put it on a nine-figure yearly run rate.
Money
Nexmo is looking to raise another tranche of cash. Why raise when you are profitable? Jamous wants to accelerate the growth of his product and support team. He still handles the bulk of support work himself, something that probably worked when the company was smaller than it is now.
Jamous indicated that he wants to raise more than $20 million, and the company is talking to new investors. Previously, Nexmo raised cash from foreign investors in China and Korea, helping it to build relationships in those markets where it didn’t have local clout. I wouldn’t be surprised if Nexmo raised its next round at least partially from investors of several continents.
Will the company struggle to raise cash? Probably not. Twilio recently raised $70 million. But the companies aren’t complete analogues, so we should avoid over-comparison, but in this context they are relatable. If Twilio can land $70 million (bringing its total raised cash to over $100 million) Nexmo shouldn’t struggle to pick up $22 million or $23 million.
The company also wants to put together a proper marketing strategy. You likely hadn’t heard of Nexmo before today. I only recently became acquainted with the firm. It could use a higher profile.
What’s Next
Nexmo was founded in June of 2010, and the first message went through its systems in January of 2011. So, in a little over three years, it has grown to a company on a $50 million yearly run rate. That’s an impressive tear. Still, the growth of OTT applications that were its clients did contribute greatly to its success, and growth.
To say right place, right time is lazy. Nexmo built a product and scaled as some of its larger firms did the same. Still, growth could slow if OTT app partners slow, and if those applications themselves lose relevance in the notoriously fickle mobile world, Nexmo could suffer from flat or declining incomes.
Also, Twilio is ludicrously well funded, and could begin to hem in on Nexmo’s key customers. Competition is a standard business risk, however, and not one that is unique to Nexmo. Still, for a company that wants to raise money on the strength of its growth, Nexmo has to keep a closer eye on its acceleration than comparable firms.
Provided that Nexmo secures the funds that it is looking for, it can begin marketing with a decent ROI, and can continue to develop its voice business. I don’t see why the company can’t continue steady growth. The days of 20 percent monthly revenue growth are likely past, but that doesn’t mean that the firm can’t keep putting points on the board.
It will be interesting to see how heavily Nexmo invests after it raises, and whether it will be willing to dip into the red for a few quarters to accelerate its top line. Once profitable, there is a certain momentum to making money. It can be uncomfortable to become cashflow negative (we’re speaking loosely here, of course) after being acquainted with profitability.
After digging through the numbers, Jamous and I discussed culture for a few minutes. The operating philosophy of Nexmo is to not hire until the need is painful, and even then to try and solve the need with technology. The company currently has 33 employees, spread throughout the United States, Hong Kong, London, and other locations. I don’t think that we’ll see Nexmo hire half of San Francisco once it secures its new funds.
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The core challenge for Nexmo is proving that it can continue revenue growth. It doesn’t have to prove that it can generate profits. But to command the valuation it likely wants, it will have to detail how it can grow outside of the OTT as quickly as it grew with it.
I’ll be checking back in with the company towards the end of the year to see how its internal metrics are looking. For now, Nexmo has built a track record that it has to continue to live up to.
Top Image Credit: Clemson