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There is a bull case worth making here too. XLM generated a ton of cash last year (£16M!). Half of that went on deferred considerations, which are mostly paid off now; the other half on R&D (websites). Over time these deferred considerations, plus the writedowns of the old business, will be flushed out of the system. More of the revenue will hit the bottom line as profit, and more of the cash will be available to.... pay as dividends?? XLM could be run as a fairly low lift dividend play. There will be good years, when States legalise and we get a spike, and/or the wider industry decides to push on the promotions for new customers, and leaner years, which 2023 is shaping up to be.
Another factor that could be big for XLM is AI. XLM is (mostly) in the business of generating quality sports-related content that also encourages users to place a bet. The key to its success is producing quality content that users actually engage with, under a brand that the users trust and keep coming back to. XLM already owns those brands; maybe it could use AI to generate the content at lower costs? To be fair I don't know how much of XLMs costs related to paying content creators, but "staff costs" account for 28% of revenue; any reduction would go straight to the bottom line.
Overall I do think XLM looks oversold. Even if it doesn't turn out to be a huge growth play (that feels unlikely at this point) it could be a meaningful dividend play, and I suspect it takes the market some time to switch from one mindset to the other.
Then again, I would love to know what bad new the market was already pricing in, given that today's announcement apparently wasn't already priced in!
I have a large holding in XLM, so please don't accuse me of "deramping", but I think it's important to see things realistically here.
First: this is not "MM manipulation". This share is a minnow, and doesn't trade high volumes, and simply isn't worth the MM's time to manipulate.
Second: £109M of XLM's assets - thats over 83% of the total - are intangible/goodwill, the majority of this coming from the websites they have bought. If it turns out that the business model is not as profitable as we all hoped, then those assets are worth far less than they are carrying for on the balance sheet today.
Third: while I agree that the "spikiness" was a known factor, the fact that the entire market seems to be in a slump is also very relevant, and is unrelated to the spikes.
What surprises / worries me is that the contents of this announcement weren't already priced in. As discussed, the spikiness should have been well understood, and a slump in the wider gambling sector seems like something that anyone watching the industry closely would know about - and would explain the steady downward trickle over the last few months. So why is this announcement a surprise?
Honestly, I'm feeling more and more on the fence about XLM. Here's a brief summary of the pros and cons, please add any I've missed!
Pros:
- many more states - including some whoppers - have yet to allow gambling -> room for growth
- company has almost finished it's turnaround & writedowns; almost entirely focused on new strategy
- generally in good financial health
- potential takeover target?
- a slump in the wider market should be temporary. Also things like MA not spiking like NY did seems reasonable given the timing (i.e. after the superbowl) - presumably all the would-be bettors will just join early next year instead.
Cons:
- the regulatory environment pendulum already seems to be swinging the other way - e.g. states adding laws banning revenue-share models
- there is no guarantee that the other States will follow suit. Many times States don't all adopt the same laws - that's kind of the entire point of having States!
- still yet to be seen what the "steady state" revenue will end up looking like, when there are no more spikes.
- presumably the market will reach saturation at some point? I.e., when there are no more people out there who want to place a sports bet, then what does XLM do? Just wait for the next crop of punters to turn 18/21/whatever-the-legal-age-to-gamble is? Or focus on convincing existing punters to sign up to multiple betting sites, each one paying a fee?
Good debate here.
Unhooked, I think this share 100% would have been counter cyclical, except that this cycle happens to be driven by COVID, and that came with an artificial cessation of insolvencies.
In many ways the strong recent results show that is _is_ counter cyclical! It will just take a while for both the bottom line and the share price to catch up.
Yeah it's pretty tough to watch.
My best explanation is that in the current market, merely the promise of an impending turnaround isn't enough. Investors are so cagey (and interest rates are so high) that only actual profits _today_ are worth investing in (and, ideally, dividends).
So it's just a waiting game. Either we wait until MANO publishes some profits or announces a divi (unfortunately another 6 months minimum), or until the market changes mood (who knows!). But the fundamentals are still there.
Thanks Oldboy, appreciate it!
Also worth pointing out that most of their US revenue is currently CPA (according to their own reports), so all the growth & progress we’ve seen so far is based on CPA, and it hasn’t been to shabby!
Haven’t seen it mentioned on this board, but it seems clear that the recent price movements are due to the decision by New York State to ban revenue sharing deals for sports book marketing. Massachusetts has done something similar.
I’m trying to gauge exactly how bad this is for XLM. They clearly state in their recent report that they are looking to make revenue sharing deals “where possible”, and these types of deals definitely lead to more revenue over the long term, albeit less predictable.
I have also read come commentary suggesting that ultimately it doesn’t make all that much difference - marketers will simply charge a higher CPA and claw back any losses from not sharing revenue long-term.
Does anyone have any affiliate marketing experience? Can you shed some light on this?
Yeah this feels like a massively positive update.
The appeal not going our way is a shame, of course, but it's the nature of the beast and to be expected. Credit to MANO for publishing the TU the day after the judgement - presumably they were waiting on that to give the update. And at least the uncertainty is over.
Truck cartel update - "materially correct" sounds slightly weasily to me, but it does imply a low upper bound on the amount by which the carrying value of those cases could be reduced. So really that removes another large chunk of uncertainty around MANO's prospects. Which is huge, actually.
BBL stuff - as they say still early days, but obviously everything reported here is very promising.
Pipeline - for me this is the big one. It wouldn't matter if MANO had won the appeal if their pipeline was still in tatters. But the extremely strong growth here is exactly what I needed to see. Very very positive!
Not sure what it's gonna take to get a true re-rating here - we may have to wait until an actual unadjusted profit, or reinstatement of dividends. But it's surely just a matter of time now, a lot of uncertainty has been removed!
I do agree… but on the other hand, the pandemic is well in the rear view mirror by now and there has been no concrete evidence of the expected uptick in business for Mano.
For me it all comes down to the next update. The narrative for a long time has been that the pandemic left a big backlog of zombie companies that would be insolvent if not for the government help, and I’m hoping (expecting!) to finally see some reflection of this in the numbers. If that doesn’t happen it may be time to reconsider.
Ah interesting, yes I'm sure this is why. And makes sense that XLM would be hit disproportionately hard because 1) it's relatively illiquid and 2) it has just reoriented itself around a US-based strategy.
Now, I hope this isn't overly optimistic, but my initial reaction is that this news isn't all that bad for XLM.
XLM's entire business model is basically affiliate marketing for betting sites. This means producing quality, relevant content that customers engage in, linking out to betting sites where appropriate. This content is NOT "predatory advertising". XLM is not an advertising agency producing these adverts and, if these adverts are banned, presumably XLM's approach would be _even more_ attractive to the betting sites as a way of funnelling in new customers.
I do get the other side of the argument too though - if advertising is banned then it's likely that the sports gambling industry as a whole will become worth less; the pie is smaller and XLM's piece of that pie shrinks correspondingly. But my hope is that this is too simplistic.
After multiple excited writeups over the last few months, scsw has implicitly downgraded XLM in the latest issue to a “speculative buy”, and averaging down in the “naps” portfolio.
I suspect this could be a driver for the price movement - I’ve noticed scsw can have a decent impact on small and illiquid shares before
So the theory is that people out there thought superbowl fever had driven the price up, and now it's over this is the best time to sell?
Plausible I suppose - would be a shame if it turned out that run up was more about this superbowl trade and less about the positive news flow!
Shame to see it back at these levels. Very low volumes I suppose.
A handful of sellers taking advantage of the bump up to 280?
Looking forward to the next update here. If there hasn’t been any sign of the Covid backlog making it’s way through the pipeline by then I may have to reconsider…
"Firstly any valuation on earnings is EBITDA"
Umm... this isn't true. P/E and P/EBITDA are two related but distinct ways of measuring value, and P/E is extremely widely reported. Which is exactly why I ended up looking at this share - my eye was caught by the low P/E.
But I do take your point that, in this case, the EBITDA wouldn't have been misleading in the same way the P/E was.
"Secondly please name me one company on this sector which isn’t valued purely on a revenue multiple."
Fair enough, and this tells me all I need to know about this sector! Good luck everyone, but this one isn't for me :-)
Wow, market really didn’t react the way you hoped!
I suspect it’s because of the underwhelming 30% increase in new cases. Given the narrative of pent up demand over the Covid regulation this was pretty disappointing.