Snakk Media (SNK) has reported a net loss of NZ$0.58m for FY16, down from NZ$4.0m year-on-year. The company delivered a 14.9% increase in revenues y-o-y to NZ$10.5m. Excluding non-cash expensing of staff options, net cash usage for the year was -NZ$0.4m, while net assets increased 66% y-o-y to NZ$4.2m. SNK ended the year with NZ$2.9m in net cash. It has also announced its FY17 key operating milestones (KOMs) and is targeting a gross margin of 62%, a click-through rate of 1.00%, a staff turnover rate of 24% and compensation ratio of 42%.
SNK reduced its losses by 86% year-on-year to NZ$0.58m in FY16, demonstrating strong fiscal management, in our view. Revenues rose 14.9% y-o-y to NZ$10.5m, while direct media costs were significantly reduced to enable SNK to produce a 70.9% y-o-y increase in gross profit to NZ$6.6m. Employee costs increased just 1.2% to NZ$4.4m while other operating expenses fell 21.6% to NZ$2.8m. The company reported its strongest revenue growth from South-East Asia, which increased 165% y-o-y. SNK noted that more than 30% of its revenues are now generated outside Australia, compared with 4% in FY14. The company announced that it expected continued growth from its traditional ANZ and emerging Asian markets. Cash usage was also tight. Net operating cash flow for the year was NZ$1.7m, down from NZ$4m in FY15. Net cash at year end was NZ$2.9m, an increase of N$0.4m. SNK also strengthened its balance sheet, with a 66% increase in net assets to NZ$4.2m, in part attributable to a reduction in trade payables.
FY17 key operating milestones
SNK has also announced its KOMs for FY17. It continues to target staff turnover of 24% and a compensation ratio (being salaries to revenue) of 42%. The company is now targeting a gross margin of 62% for FY17, having delivered 63% in FY16 against its target of 55%. It is also targeting a click-through rate of 1.00%, up from its FY16 target of 0.95%. SNK will report its Q1 KOMs on 28 July.
Valuation: Trading at a steep discount to peers
Even with its small size and early-stage development, both of which could attract a discount, at 0.6x FY16 EV/sales, SNK is trading at a c 60% discount to a median multiple for the broad global peer group of quoted mobile solutions and digital advertising companies (see Exhibit 5).
Year
end |
Revenue
(NZ$m) |
Gross profit
(NZ$m) |
PBT
(NZ$m) |
EPS*
(c) |
EV/Gross
profit (x) |
EV/Sales
(x) |
03/13 |
3.7 |
1.9 |
(0.9) |
(5.7) |
3.2 |
1.6 |
03/14 |
7.1 |
2.9 |
(1.9) |
(12.0) |
2.1 |
0.9 |
03/15 |
9.2 |
3.9 |
(4.0) |
(25.6) |
1.6 |
0.7 |
03/16 |
10.5 |
6.6 |
(0.6) |
(3.7) |
0.9 |
0.6 |
Source: Snakk Media. Note: *EPS in prior years recalculated for share consolidation.
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Snakk Media delivered an 86% reduction in net losses to NZ$0.58m in FY16, with the H216 net loss of NZ$0.34m significantly down on the NZ$1.8m reported in H215. The company’s gross margin for the year was 63% with the second half margin of 59% well up y-o-y, as Exhibit 1 demonstrates.
Exhibit 1: Operating performance by half year and full year
NZ$m |
H114 |
H214 |
FY14 |
H115 |
H215 |
FY15 |
H116 |
H216 |
FY16 |
Net revenue |
3.020 |
4.036 |
7.056 |
3.962 |
5.196 |
9.158 |
4.580 |
5.942 |
10.522 |
COGS |
1.644 |
2.531 |
4.176 |
2.598 |
2.702 |
5.300 |
1.510 |
2.417 |
3.927 |
Gross margin |
1.376 |
1.505 |
2.880 |
1.364 |
2.494 |
3.858 |
3.070 |
3.524 |
6.594 |
Gross margin % |
46% |
37% |
41% |
34% |
48% |
42% |
67% |
59% |
63% |
Loss after taxation |
(0.838) |
(1.054) |
(1.891) |
(2.191) |
(1.834) |
(4.024) |
(0.240) |
(0.340) |
(0.581) |
The company reported its strongest revenue growth from South-East Asia, which increased 165% y-o-y to NZ$1.8m, overtaking its New Zealand operations in size. As Exhibit 2 demonstrates, the growth in revenues in South-East Asia underpinned the group’s y-o-y revenue growth.
Exhibit 2: Revenues by region by financial year
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Operating cash flow was also tightly managed. The company reported that operating cash flow for the second half declined to NZ$0.5m, well down on the first half and previous corresponding period, as Exhibit 3 highlights.
Exhibit 3: Operating cash flow by half year
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SNK announced its FY17 KOMs, increasing its targets for click-through rate and gross margin. It is now targeting a click-through rate of 1.00%, up from the FY16 target of 0.95%, despite delivering a lower rate of 0.90% for FY16. The lower click-through rate in FY16 was due to the emphasis placed on a significant video campaign in South-East Asia in Q416, in which the key metric was completed video views rather than click-through rates.
SNK has also increased its target gross margin for FY17 to 62%, up from 55% in FY16, after delivering a better than target gross margin of 0.63%, as Exhibit 4 highlights.
Exhibit 4: Key operating milestones, actual and 2017 target
Year ended March |
2014 actual |
2015 actual |
2016 actual |
2017 target |
Click-through rate |
0.70% |
0.90% |
0.90% |
1.00% |
Gross margin |
40% |
42% |
63% |
62% |
Compensation ratio |
39% |
43% |
47% |
42% |
Staff turnover |
14% |
19% |
16% |
24% |
Even allowing for its small size and early-stage, SNK is trading at a significant discount to its listed peers. At 0.6x FY16 EV/Sales, SNK is trading at a c 60% discount to the media 1.5x multiple of its peer group, as Exhibit 5 demonstrates.
Exhibit 5: Listed peer comparison
Company |
Code |
Currency |
Market cap
(m) |
EV (m) |
EV/Sales
(x) |
EV/Gross
profit (x) |
Gross margin (%) |
EV/EBITDA
(x) |
Cheetah Mobile |
CMCM.US |
USD |
1,570 |
-128 |
-0.5 |
-0.6 |
77.1 |
-2.9 |
Criteo |
CRTO:NASDAQ |
USD |
2,797 |
2,454 |
1.9 |
5.2 |
35.7 |
27.4 |
Mobile Embrace |
MBE.AX |
AUD |
137 |
127 |
3.9 |
4.7 |
82.4 |
32.0 |
MOKO Social Media |
MKB.AX/MOKO:NASDAQ |
AUD |
17 |
10 |
1.5 |
56.3 |
2.7 |
-0.5 |
Opera |
OPERA:OSLO |
NOK |
9,715 |
9,779 |
15.9 |
26.6 |
59.7 |
91.7 |
Sizmek |
SZMK:NASDAQ |
USD |
71 |
29 |
0.2 |
0.3 |
61.2 |
2.2 |
Telenav |
TNAV:NASDAQ |
USD |
202 |
82 |
0.5 |
1.0 |
50.8 |
2.6 |
Median |
|
|
|
|
1.5 |
4.7 |
59.7 |
2.6 |
Source: Bloomberg, Software Equity Group. Note: Prices as at 27 May 2016.
