Member Info for lemonade311

Why does AudioBoom have terrible gross margins? Their gross margins have never gone above 23%, in-fact they have gone down from 23% in 2020 to 17% today (excl. bad contracts).

Acast gross margins have been increasing, going from 33% to 39% in last quarter.

Hard to actually see why this is, both companies seem to have the same business model and yet acast has 2x the gross margins. This is why their stock price is up 160% and booms is up 60%. It seems to be the superior business but it's hard to say why this exactly.

Some key things I think about audioboom:

- Gross margins are what drives the value here. The huge drop from 21.97% in 2021 to -3% in 2023 due to signing bad contracts at the height of the ad bubble was bad obviously.

They need to hit >25% gross margins in 10 years for it to translate to meaningful free cash flow. 20% gross margins would be bad, every % point matters here. Should be possible once the ad market bounces back as premium ad % will be a higher portion of revenue and will be around 25% gross margins.

Sonic's margins are trash at 13% so that needs to fall as a % of revenue. Showcase margins are 32% which is great but there's only so much back content and DAI you can do so that will probably stay between 20-30% of revenue in 10 years?

- Pretty silly that they invested so heavily in their own content creation in the height of the podcast bubble in 2021, touting how much gross margin % it had and then shut it down 2 years later due to the poor ROIC as it was too hard to market new content in a bubble.

I guess this results in less oper. expenses though as you don't have to market acquired podcasts to build a user base in the same way.

- No idea why management is talking about introducing a 'progressive dividend', a dividend for a growing company makes 0 sense, they don't have excess cash to distribute to shareholders for the next many years, that money should be going into acquiring podcasts and investment in tech. Especially if they move to the US market, the US won't like this.

- Their revenue in 2023 was maintained by increasing ad-slots from 5.2 to 8, that's a massive increase. There's probably no more room to insert any more ads into a podcast as users will just churn. Acast for example has 6.2 ad slots per podcast. Also their e-CPM is $60, way higher than $15 that Acast has, no idea why this is...

- The question is how much they can scale without increasing headcount too much as well. I think 150 employees for $450 in revenue in 10 years is reasonable as that's $2.7m in revenue per employee. But this all translates down to oper. margin.

I've already emailed the CEO & CFO, will see if they answer, I post here just in case anyone knows the answer as well. I'm not saying they are doing it nefariously, it's just not very clear from their reports especially as the reports they reference cost $3000 to access (the PWC one) & then other reports as well such as grandtree.

Anyway the valuation does look quite ridiculous at this price either way. Doing a reverse DCF and the market is pricing in less than industry growth of just $150m in 10 years (which would mean they lose market share to competitors and that's not what's been happening historically) and quite small oper. margins in year 10 of just 7.5% (presuming minimal reinvestment as capex/change-in-working capital because all of audiobooms 'investment' is in it's COGS as podcast acquisitions).

Given that audioboom seems to have quite good operating leverage this looks pretty silly.

They had 47 employees in 2018 (when they started transitioning to a fully podcast platform) and are now at 39 employees.

In that time their revenue per employee has gone from 250k in 2018 to $1.67m which is good obviously and their business is far superior by the KPI's.

Acast, a swedish competitor has $1.47m rev per employee.

Spotify (which isn't just podcasting obviously and holds a dominant position) has $2m per employee right now.

I think a lot of the value of audioboom should be realised by the market over the years as that operating leverage comes through (if it does) and the IOS update temporary revenue drop is past it (it was actually a good update long term because it means advertisers get healthier ad-spend, i.e they don't want to be spending on ads when a download happens and the user isn't listening to it).

So yeah I'm in broad agreement that the shares are grossly undervalued after more research. It's a bit bizarre that they are trading at the same price as they were in 2016 when they had just revenue of £1.5m then lol but that's the AIM market right now across the board and I agree it's a good sign the chairman is buying a lot.

I can't get their market share numbers to add up at all. It doesn't help that they seem to use different numbers everywhere too.

Page 4 of this investor deck here: https://audioboomplc.com/wp-content/uploads/2024/07/July-2024-Investor-Deck-Final.pdf

This says $4b global revenue in 2023 to $16 billion global revenue by 2030, sites the source of GrandViewResearch, however grand view research does not show that at all:

https://www.grandviewresearch.com/horizon/outlook/podcast-advertising-market-size/global

It shows $14.9b in 2023 and $38b by 2030. This is a 14% CAGR, not 22% CAGR

In their 2023 annual report it clarifies it as:

> Total Addressable

Market (TAM) between now and 20302. In 2023, the global

podcast industry TAM was $4 billion. By 2030 this is set to

rise to $16 billion,

Then, if you check their 2023,2022,2021,2020 annual reports, they mention the following market shares:

> The clearest and most significant result of this performance

is the growth of our market share over this four ­year period.

In 2017 our market share was 1.9%, growing to 6.3% in 2022

Citing it in the footer as:

> 2 Source: Grand View Research, Podcast Market Size, Share, Trends & Growth Report 2030

2023 -> unknown, doesn't say

2022 -> 6.3% market share

2021 -> 4.5% market share

2020 -> unknown, doesn't say

2019 -> unknown, doesn't say

2018 -> unknown, doesn't say

2017 -> 1.9%.

You can fill in the blanks roughly for 18/19/20 years anyway.

However, these market share numbers don't add up at all.

Let's say they have 7% of market share in 2023. 7% of $4b is $280m. So the market share number they are referncing in these reports is clearly not the global market share number at the top for podcasting revenue.

If you see their 2022 & 2021 annual reports, they reference the PWC report for the market share:

> The market continued to grow in 2022, although was

restricted by macro­economic conditions. PwC’s

Entertainment and Media Outlook report projects podcast

industry revenue to have grown by 15% in 2022 –

Audioboom’s own 24% growth therefore significantly

outperforming the market by 60%.

Doesn't say an actual number here but if we see 2021 annual report:

> The market continued to grow strongly in 2021. The

Interactive Advertising Bureau’s most recent revenue study,

compiled by PwC, projects the US market to have reached

$1.3 billion in 2021 – annual growth of 60%

We get the number of $1.3b. So in 2021 they said they had 4.5% market share, that is $58.5m, that adds up to the correct number of $60m~ in revenue for that year. So the market share numbers they reference in the annual reports are for the US market then, not the global market.

But if you check the US market from grandview research, the market size is not $16b at all in 2030 but instead $10b.

https://www.grandviewresearch.com/horizon/outlook/podcast-advertising-market/united-states

This also doesn't match the $1.4b market

Also, does anyone know what the annual bonus revenue, ebitda and KPI metrics are for the CEO/CFO? They don't even mention what these targets are in the annual report from what I can see which is just weird.

> the bonuses awarded to the executive directors in respect of the period in review equated to 15 per cent of respective base annual salaries. whilst internal and market expectations in respect of revenue and adjusted ebitda were not met, the committee acknowledged that this was in large part down to macro­economic issues and a softer advertising market, and a bonus was awarded to reflect the meeting of certain of the other bonus criteria.

don't you just love it when you completely miss your revenue & adjusted ebitda metrics for the bonus but still get paid 15% just cause you can blame bad macro environment.

lse:sdg does this too and it's a joke. shareholders & employees don't get paid a 15% bonus just cause of a bad macro environment. i ******* hate this from remuneration committees.

also, using adjusted ebitda as a performance metric is dumb. this excludes share based payments and bad contract deals which is obviously stupid as it's a real cost.

Well it does make sense to cancel those £15~ options because they are essentially worthless now and do nothing to motivate the CEO or employees.

I'm still looking into this company as the KPI's do seem to be improving. Minimum contract requirements for top tier podcasts also kind of sucks as a business model, no idea why this is standard in podcasting world, probably cause spotify, youtube etc have too much money.

Basically, it seems as though the CEO and CFO aren't very good at capital allocation.

Their stock price rose 10x in 2 years and they didn't raise capital at any time during that and yet he's complaining about undervalued shares.

That was a perfect time to raise capital.

@whatwhatkid

Yeah that's better, but not by much.

> following share options:

10,660 options with an exercise price of £4.125, expiring on 24 September 2025

7,000 options with an exercise price of £3.125, expiring on 9 March 2026

50,340 options with an exercise price of £2.185, expiring on 8 May 2027

44,000 options with an exercise price of £1.30, expiring on 20 March 2029

90,000 options with an exercise price of £2.075, expiring on 20 December 2029

50,000 options with an exercise price of £4.45, expiring on 19 March 2031

60,000 options with an exercise price of £15.55, expiring on 20 May 2032

60,000 options with an exercise price of £3.61, expiring on 20 April 2033

Current stock price (S): £2.17

Average strike price (K): £4.5525

Average time to expiration (T): 4.69 years

Risk-free interest rate (r): 3% (0.03)

Stock volatility (σ): 50% (0.50)

372,000 * £0.5143 = £191,319.60

So his options are worth £191k.

His current shares are worth £88k.

So £279k in total is his interest in this company.

That's still less than his annual salary.

And yet he's complaining that the stock is undervalued but he's not putting his money where his mouth is. He should be buying more at this price.

@poe, @bear, try not to get offended and label people trolls when other people point basic things on a company, being biased hurts your returns :)

I found this while looking into this company. It's simply a yellow/red flag that isn't a good sign.

His answers make no sense on the not buying shares when he earns that much and only holds £60k worth of shares.

And in regards to acquisitions, you can read this: https://www.reddit.com/r/ValueInvesting/comments/1fidkn4/7090_of_aquisitionsmegers_destroy_intrinsic_value/

https://youtu.be/kgx7r3zydga?t=2679

1. 'i would be buying my shares if i had the ability' -> ceo earns $300k a year, makes an excuse that he doesn't have the personal finance to buy shares right now... bull**** obviously lol.

2. 'our shares are materially undervalued, if they were higher we could do acquisitions' -> huge red flag again, big acquisitions destroy value 90% of the time just like their terrible 2019 failed merger would have done

Thanks for the comment.

Good question, you are correct that my total aircraft number is off due to planes retiring. However, I didn't base any of my numbers in the valuation off of the total plane count (Capex + Depreciation is based off total plane/new planes but that won't change).

I based the revenue and stuff off of the total market share projections. So you are 100% correct and I will update that row in the spreadsheet but it doesn't change the valuation. In fact all it does is make the revenuePerAircraft row go up.

That £90m cash, part of it will be unwided over the course of the next year:

> The cash flow profile of the Group is seasonal with approximately 50% of customers travelling in the period June to August and therefore in a normal year the cash flows (excluding any cash held in the Trust) experience a trough prior to June and a peak following this.

However it's a significantly bigger increase in cash end than 2019 or last year which is good. I want to see management implement buybacks at this share price instead of dividends.

@Alessandro, this is an update. Not a results rns...

This is the same format they have done before. Also in regards to your 'margins being squeezed to the bone', it very clearly says the ryanair integration caused a one off exceptional cost which is affecting this updates margin which makes sense. You have to increase expenditure in devs to build the ryanair API stuff which is a one off.

In what world is isg and watkin jones business models comparable? Or did you just read a BBC news article and think to spout rubbish here?

This is now trading 36% under it's inventory + cash.

Https://www.reddit.com/r/ValueInvesting/comments/1foa4hy/jet2_is_still_grossly_mispriced_in_my_opinion/

I get the same as peel hunt in intrinsic value of £22.

@solomonkane

The UK market in general is very mis-priced, it isn't just jet2, lots of small-med caps are at stupidly low levels.

a) I don't blame him seen as his net worth went down 95% in covid and then rebounded, guy must have had a heart attack.

b) buybacks and dividends would be stupid. They have an order for 146 airbus planes, this requires a lot of capital, that's why they have £1.3b in cash on their books, for this order.

Why do UK investors always want dividends even though it's a terrible use of capital for growth companies (due to tax) I will never know.

Https://www.landlordtoday.co.uk/breaking-news/2024/09/thousands-of-new-build-to-rent-homes-from-global-finance-firms/

@BeardedDragon

Also I think it's funny that you think you know better than the institutional investors here.

Your deep dive analysis of dr martens is probably looking at a PE ratio lol.

@BeardedDragon

What on earth does rolls royce have to do with DR martens lol. You are just another emotional retail investor who lashes out at anyone not on board with what companies you like.