How to take advantage of temporary bad news

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How to take advantage of temporary bad news

The content of this blog (or content associated with it) is not intended as investment advice. I own shares in audioBoom so please do you own research.

audioBoom #BOOM
Share Price: 2p
Market Capitalisation: £12.76m
Shares in Issue: 638m

How to take advantage of temporary bad news

This week audioBoom released an update on its 4th quarter Key Performance Indicators and trading for the year ended 30 November 2016.

Essentially, there was one bit of good news and two bits of bad news. Of course the share price reacted to the bad news. However the bad news, is temporary and the good news should keep on getting better.

Let’s start off with the good news, which is not temporary….

Revenues increased by 677% from 2015 to 2016

“Overall 2016 revenues are expected to exceed £1.3 million, an increase of more than six fold compared to last year, and ahead of market expectations.

The rate of growth in 2016 has continued to accelerate from H1 to H2, with Q4 revenues of more than £630,000. This rate of revenue growth has continued post year end, with over £1.1 million already booked for advertising campaigns in 2017.”

Rob pointed out on the podcast that most of 2017, pre-booked revenue was in the first quarter. Considering their end of year was the 30th November, only a month after this date, their pre-booked revenue for 2017, is close to exceeding the revenue they generated for the entire 12 months of 2016.

They also have a revenue target of £5.4m for the 2017, although judging by Rob’s mention of this, he seems to think this is slightly conservative. He said, “We did a 6 fold increase this year, are we looking to do a 6 fold increase next year? You’re damn sure that’s exactly what we’re going for”.

Below I’ve estimated revenue for 2017 based on a 25% increse quarter on quarter, which brings total revenue in, just below their expected £5.4m target.

As you can see, if they continue to burn cash at £500k per month they will be EBITDA positive by the end of 2017 by £43,203. If they cut their cash burn down to £250k per month, they would be EBITDA positive by £3,0043,203.

audioBoom did state in their interim results of 5th August that, “the Group is on track to meet market expectations for FY 2016, improve revenues and move towards its target of a breakeven position by the end of 2017.”

Here’s the two bits of, temporary, bad news:

1. EBITDA Loss to be Greater than Expectations:

“The company stated that this was due to acceleration in audience acquisition costs and higher recruitment fees to acquire USA commercial head count. Additionally, UK annual headcount has been reduced by £465,000 to allow the Company to focus on its growth opportunities in the USA.”

audioBoom receives most of it’s revenue from the US and this is set to grow, so decreasing their UK headcount and increasing their US headcount makes sense. That said, it does come at a cost. As Rob stated in the podcast this week, making redundancies costs money as does acquiring good sales people in the US. He also said the investment in the US sales team is paying dividends, as seen by their revenue growth.

Rob stated that monthly burn is now down to £250k (from double that) and dropping on a monthly basis through to Q1 & Q2 of next year.

So it’s fair to assume the cash burn is coming down and quarter 4’s figures reflect exceptional costs associated with hiring and firing.

If they do get the cash burn down to £250k per month and the revenue comes in at £5.4m for 2017 they will make an operating profit of over £3m.

2. Cash in Bank

The year-end cash balance was c. £710,000. If audioBoom are burning around £250k per month then this cash will last for just over 2 months. So they need to raise funds to keep them going for at least another six months before they can rely on their revenue alone. This means a minimum raise of £1.5m is needed.

Will this be a problem?

They have some big cornestone investors and they raised £2.55m back in August, when you could argue, that their fundamentals weren’t as strong as they are now. So no, this shouldn’t be a big issue.

At the moment audioBoom’s share price is languishing close to all time lows but their revenue has never been better and it continues to improve. Their cash burn is also being reduced. So the argument for a share price rise are compelling.

Having said this, AIM investors are always weary of a fundraise and this impending news is currently hanging heavily over the share price. Once it’s done, I wouldn’t be surprised to see the share price, finally climbs to a reflect a valuation that justifies audioBoom’s position, as a global leader on spoken word podcasts.

Rob has often talked regarded his company’s valuation as a joke. He spends a lot of time in the US and has witnessed digital start ups, without a product but in their space, raising between $5-$15m and being valued at $40m-$50m. Yet audioBoom, the leaders in their market, with proven product and revenue growth, are valued at just £13m.

Research shows the podcast market is going to quadruple in the next 3 years, which means the industry will be worth between $1bn – $1.2bn by 2020 and Rob want’s audioBoom to have a 10% share of this market. If their revenue continues to grow, year on year, at the current rate, then 10% of $1bn is easily achievable. In fact they’d achieve it at a just 3 fold increase, year on year from 2016, rather than the 6 fold increase they’ve seen this year.

If their current share price doesn’t rise considerably, in the next 12 months, then there’s little doubt audioBoom will be a highly sought after target for a bigger media group, looking to get position in the rapidly growing podcast market.

I received this email at the weekend, from audioBoom:

It’s a distribution agreement with iHeartRadio, part of the iHeartMedia Group.

According to Wikipedia, “With 850 stations, iHeartMedia is the largest radio station group owner in the United States, both by number of stations and by revenue. The 850 stations reach more than 110 million listeners every week, and 245 million every month”.

You can listen to my interview with Rob Proctor, the CEO of audioBoom below:

The content of this podcast (or content associated with it) is not intended as investment advice and people featured may hold positions in the companies they talk about. Please do you own research.

I HOLD SHARES IN AUDIOBOOM.

 

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