Straker (ASX:STG): After a difficult few years, could AI be a major growth catalyst?

Is Straker (ASX:STG) just one of those companies using the term ‘AI’ just to attract attention when nothing else is working? We cannot blame investors for skepticism, but it has been in the ‘ultra-fast machine learning’ space long before the hype took off. And its experience could put it in good stead.

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Who is Straker?

Straker was founded in New Zealand in 1999 and named after the surname of co-founder Grant, whose fellow co-founder was his wife Merryn. Straker’s ASX listing came in 2018 following earlier funding rounds during which prominant tech investor Bailador bought into the company.

Its traditional specialty has been in translation and transcription services where it has a platform that is powered by a mix of AI, machine-learning and a crowd-sourced pool of freelance translators. Hang on? Isn’t there Google Translate? Yes, but it cannot translate important documents (i.e. employment, medical or compliance) and it cannot make captions in real-time.

The company has many prominent clients including Zoom, Adobe, SAP and IMB. Clients like these use the platform for many purposes including website development, media broadcasts and corporate conference translations. IBM is its most famous client and just renewed its contract for another 3 years to the end of 2028, with an estimated contract value of NZ$28m over that time.

Famously, IBM’s premier annual conference THINK2020 was held virtually during the pandemic and it was Straker that ensured it could happen remotely.

In the most recent financial year, the company delivered $44.9m revenue, a 67% gross margin, $4.8m adjusted EBITDA and $3.4m operating cash flow.

Undergoing an evolution

Straker’s bread and butter still is in translation, but rather than being a service provider, it is is purporting itself to be an AI technology provider. Indeed, in August 2023 the company re-branded from Straker Translations to Straker Limited to reflect the broader technology & AI focus. AI is the way the translation industry is going in and the company’s strategy is capitalise.

Its portfolio suite now includes the Tiri family of small language models, ensuring that all translations are accurate, consistent and tailored to the needs of the client. It also includes Verify which allows users that need to ensure quality can upload one of 17 file types to the platforms to not just translate but give a quality score and even decide who to send it to, and how much of it.

Difficult times of late

The company’s share price has not gone that well since 2022 – down 80% from its all time peak. It is easy to blame the Tech Wreck and we cannot say it was not to blame at all. Nonetheless, it did not help that it had some non-renewals in Europe that weighed on guidance during 2024.

And perhaps investors would feel more comfortable if it had a record level of proper profit rather than ‘a record level of adjusted EBITDA‘. It made a $10.5m loss before tax, up from $2.5m the year before. Yes, a fair proportion of this was due to amortisation and impairments, although its EBITDA margin was only 10.6%.

The company still expects positive ‘adjusted EBITDA’, but it expects revenue would be $38-41m which would be down again.

There has been some good news recently including the increased focus of AI and contract wins, IBM (as mentioned above) as well as the Translation Centre for the Bodies of the European Union (worth NZ$1m) and another unnamed global enterprise customer which includes a minimum volume of 13.3m translated words across 35 target languages.

Conclusion

If you believe STG can accelerate growth from here, convert its transition into scale, and increase AI revenue significantly, then the current low price might offer upside, but there’s higher risk. You’re taking a big leap of trust that ‘it’s different this time’. That it can return to growth seen in previous years and can make a profit vs ‘adjusted EBITDA’.