How Silverlake Axis Ltd Makes Money

Before you invest a single cent in a company, you should ask yourself how a company makes money. Once you understand how it earns its keep, you would be able to make better-informed investing decisions.

It is with these in mind that I examine technological solutions provider Silverlake Axis Ltd’s (SGX: 5CP)  different revenue streams.

Silverlake Axis's revenue segments
Source: Silverlake Axis’s earnings presentation

The chart above contains data taken from Silverlake Axis’s earnings presentation for the third-quarter of its fiscal year ended 30 June 2016 (FY2016).

As you can observe, the majority of Silverlake Axis’s revenue (53% of total revenue in the first nine months of FY2016) comes from the Maintenance & Enhancement Services segment.

Silverlake Axis’s business model has elements of the razor/razor-blade model. A maker of razors would sell the razors to customers. As customers use the razor, the blades will need replacing, and that is where the razor maker gets to earn recurring revenue.

In the case of Silverlake Axis, segments such as Software Project Services and Software Licensing would be analogous to the razor; the Maintenance & Enhancement Services segment would be akin to the razor blade.

It’s worth noting that Silverlake Axis’s clients are mostly financial institutions such as banks and insurance companies. The company serves over 200 organisations across Asia, including 40% of the largest banks in South East Asia. This is also why Silverlake Axis has the Credit Card Processing and Insurance Processing revenue segments.

Given Silverlake Axis’s different business segments, there are a number of moving pieces which could make it a little tougher for investors to understand what is going on. But as I mentioned earlier, investors who can grasp how a company makes its money would be able to make better-informed investing decisions.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat doesn’t own shares in any companies mentioned.