Social media content specialist Brave Bison (LON:BBSN) shares slipped 20% today as a trading statement reported increased revenues at the half-year point but a material projected decrease for the second half of the year, citing ‘monetisation challenges’. There is very little space left for the share price to go now:
The bigger story around Brave Bison is very interesting. Formerly known as Rightster, the company produces social media content for various firms which can be monetised in a variety of ways across a number of different platforms. We would expect this type of business to be a very new one, but they have been trading since 2011.
Unfortunately, since then the market perception seems to have changed a lot. At one stage, the company was valued at over £80m as it was envisaged that big things could happen, given the reach of social media. However, a series of profit warnings has decimated the price and an almost total loss of confidence has seen the valuation sit below £9m today, a very poor story for long-term holders.
One of the main themes is that financial performance here has followed the trend of many early-stage technology companies: very large losses in the early stages as the company spends for growth, with profit always in the future. Sadly for Brave Bison, the date for this profit has been pushed back continuously. It has been able to raise cash for these losses by selling equity as the price was high: almost £70m raised in this way, with the share count going from 116m to almost 600m. But that option is now closed with the share price so low.
The warning comes in a half-year report. There are some good highlights such as an increase in revenues and a positive adjusted EBITDA (although with adjustments a loss is seen). The comments from the CEO are not so positive:
Diversification of revenue in relation to social channels has also been a key theme for the period, particularly given that like many large publishers in the industry we have experienced the impact of having a substantial reliance on Facebook in recent months and their recent change in publisher policies. As a result, although we still expect adjusted EBITDA to be positive for the second half of 2019, the outturn for the full year to 31 December 2019 will show a material reduction in revenue and adjusted EBITDA versus current market expectations.
Facebook accounts for 65% of revenues, so this is a material impact. The outlook goes into slightly more detail, but not much:
The monetisation challenges that have impacted us from Q2 2019 may take several more months to resolve.
A research note has helpfully come out today from Allenby Capital which quantifies what this might mean. FY19 Adjusted EBITDA drops to £0.4m from £1.2m, and FY20 goes to £1m from £1.8m. Real break-even is pushed back to 2020.
Brave Bison bigs itself up as an ‘agile’ business, although any business in this field would have to be as the landscape is always changing. It operates through two different streams, advertising and fee-based revenues. It is not difficult to understand how advertising can be lucrative: with even marginal Youtube celebrities pulling in decent incomes from their content, subtly producing content for income can boost this further.
So much like XLMedia, you may have inadvertently consumed Brave Bison content without knowing it, as they operate many different ‘communities’ across social media platforms, collecting the advertising revenues from views.
The other factor in their business is fees: producing advertising campaigns for other companies. With advertising in this field moving slightly towards being more interactive, clearly Brave Bison are in a good position to do it.
So it is no surprise to see revenues increasing heavily, but operating costs have done so as well as the headcount has risen. Profit figures have been enough to make anyone wince, but perhaps things have been turning a corner. Revenues have risen which is reflected in a trend towards profitability. Significantly, operating cashflow turned positive for the first time last year.
The profit swings have been harsh here, explained by an acquisition of intangible assets which was then written off, and this charge taken to profit and loss. Today the intangible balance has been depreciated almost to zero, which leaves a positive net tangible asset value charge. It may be of some comfort to investors that the cash balance at last year end (£5.4m) makes up over half of the market cap. This is not projected to disappear, but given the volatile nature of the industry it would seem likely that unforeseen reorganisation costs will be constant.
There are no borrowings. However, with the firm looking for acquisitions, this may change pretty soon. A profitable niche across social media would likely be quite expensive relative to earnings.
One red flag comes from the annual report:
We know that Woodford’s fund is suspended, and with a mandate to reposition themselves into more liquid, larger companies, this stake seems likely to come down significantly. This forced seller may depress the price for some time.
Whilst admiring the quality of content produced, there isn’t much to like about this as an investment. Advertising revenues are heavily dictated by the platforms themselves, and there is very little control that small companies such as Brave Bison can do about it, despite how much business they are giving them. It may be also fair to say that pricing weakness on one platform may eventually transfer to others.
Whilst a way to insulate a firm from these pricing pressures is to produce content for others (which gets money up-front), this is also fraught with difficulty. Revenues for this segment have decreased in the past year, and it isn’t too difficult to guess at the reasons: competition among smaller studios would be pretty intense, and many larger firms could decide to simply move activities in-house instead of outsource. Given that any advantage here must lie within people, it would be very difficult for this to be maintained.
The dynamics of the market mean that business can be lost very quickly. Social media content pages can be created in an instant, and due to viral networks, can propagate extremely quickly, resulting in a quick loss of page views for the losers.
One must wonder if this type of business would ever be run for shareholders, instead of employees. Remuneration here runs on the high side, no doubt the justification being to attract good people. With a continued history of profit warnings and reorganisations it is doubtful whether long-term they will get the volumes required to success. 1/5.