Research Report for Snakk Media Limited

3 February 2017
Snakk Media coverage is provided through the NZX Research Scheme
NXT Company Spotlight
H117 peak investment
Snakk Media (SNK), which connects brands to mobile audiences, has
published its Q317 key operating milestones. These include a premium
gross margin of 60%, compared to peers at 40%. This is a little below the
company’s 62% FY17 target, with the year to date figure also now at 62%.
The click-through rate softened slightly to 0.96% from 0.98% in Q217, still
well above the mobile industry average (0.62%). Staff turnover at 12% was
below the full year guidance of 24%, with the compensation to revenue
ratio dropping back under the FY17 target. COO Joel Williams has now
taken over the role of CEO, following Mark Ryan’s departure in December.
Driving differentiated product
The interim figures to end September 2016 show clearly the impact of the group’s
heavy investment in product development, people and systems in fast-moving
markets. The upside of fast-moving markets is that they throw up opportunities for
flexible participants. Snakk’s investment has been focused on those areas where
the competition is less fierce, with a differentiated offer, and also on building and
broadening commercial partnerships that should give greater consistency and
visibility of earnings. With a lag in building up the revenue streams in the important
SE Asian market, the half year loss widened from NZ$0.2 to NZ$1.9m in H117.
Mobile fast gaining share
The latest MAGNA report on the global advertising market identifies Australia as
one of the fastest growing markets, with an estimated 7.4% uplift for 2016. Globally,
they estimate digital-based ad sales rising to 40% of the total market in 2017, to
reach half by 2021. Mobile advertising is appraised at 45% of digital, growing to
52% in 2017. The key drivers are search and social which are thought to be taking
a greater share of below-the-line offline marketing budget rather than diverting
funds from other advertising media. Between them, these two areas account for
88% of the growth in 2016 forecast digital ad spend, with Google and Facebook
respectively dominant. This reinforces the argument that other players need clearly
differentiated and value-adding propositions to maintain and grow share of spend.
Valuation: Trading at a substantial discount to peers
Snakk continues to trade at a significant discount to its listed global peer group of
quoted mobile solutions and digital advertising companies, even allowing for its
small size and early stage. At 0.4x FY16 EV/sales and 0.6x EV/gross profit, Snakk
is trading well below the consensus media peer group multiple of 2.1x and 4.9x for
those metrics. The Manji Family Trust now holds 13.3% of the issued share capital.
Snakk Media
Media
Price NZ$0.36
Market cap NZ$6m

Net cash (NZ$m) at 30 September 2016 1.6

Share price graph


Share details
Code SNK
Listing NXT
Shares in issue 15.7m

Business description
Mobile advertising technology company Snakk Media
offers a full suite of mobile creative, content and
technology services, empowering the world's leading
brands and agencies to accurately reach and engage
with consumers on their mobile devices.


Bull
 Targeting high-growth markets.

 No legacy advertising systems.

 Broadening creative and technical offer.

Bear
 High currency exposure to US dollar.

 Low barriers to entry.

 IP risk tied up with talent.

Analysts
Fiona Orford-Williams +44 (0)20 3077 5739
Bridie Barrett +44 (0)20 3077 5757

media@edisongroup.com

Historical financials
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) 2.1 1.1
03/14 7.1 2.9 (1.9) (12.0) 1.4 0.6
03/15 9.2 3.9 (4.0) (25.6) 1.0 0.4
03/16 10.5 6.6 (0.6) (3.7) 0.6 0.4
Source: Snakk Media. Note: *EPS in previous years recalculated for share consolidation.

Snakk Media | 3 February 2017 2
Q317 key operating milestones
Snakk is due to issue its Q4 key operating milestones (KOMs) by 3 May 2017. Key quarterly
operating milestones for 9M17 are shown in the table below.
Exhibit 1: Key operating milestones – Q117, Q217 and Q317 actual and 2017 target
Q117 actual (%) Q217 actual (%) Q317 actual (%) 2017 target (%)
Click-through rate 0.95 0.98 0.96 1.00
Gross margin 67 61 60 62
Compensation ratio 46 65 41 42
Staff turnover 12 9 12 24
Source: Snakk Media
Interim results summary
The interim H117 figures (to September 2016) were released at end November and showed
advertising revenues ahead by 2.7%, but with higher direct costs pushing the gross profit down
2.5%. Loss before tax widened to NZ$1.9m from NZ$0.2m in H116, with the bulk of the difference
being in the increase in employee costs as the group scaled up investment in people on both client-
facing and support functions.
The group also continues to develop new products and creative capabilities for mobile. The
investment strategy has been built around:
 ongoing development of mobile media products;
 establishing exclusive technology partnerships for agencies and their brands;
 mobile creative for agencies and direct to brands;
 geo-location data insights capability for Tier 1 enterprise brands;
 programmatic/self-service access to proprietary geo-location trading platform; and
 developing the group’s presence in South East Asia.
The hiring and development programme was completed in H117 and this is indicated to have been
the peak expenditure period. On 30 September 2016, net cash on the balance sheet stood at
NZ$1.58m, from NZ$3.02m at end March 2016.
On 22 December, the previous CEO, Mark Ryan, left the role and was replaced by Joel Williams,
who had joined the group as COO in August 2016. Prior to joining Snakk Media, Joel had held
various executive leadership roles including COO, CFO, CIO, and CRO/IA in large listed companies
across a range of sectors, including News Corp, Fairfax Media, David Jones, NAB, Australian
Pharmaceutical Industries, Pioneer International (building materials) and PwC. He is a qualified
accountant.

Snakk Media | 3 February 2017 3
Peer comparison
Even allowing for its small size and early stage, Snakk is trading at a significant discount to its listed
peers. At 0.4x FY16 EV/sales, Snakk is trading at just 18% of the median level of the consensus
peer group multiple, as Exhibit 2 demonstrates. On EV/gross profit, which provides a better
comparative metric due to differing accounting policies, Snakk trades at 0.6x, compared to the peer
median of 4.9x.
Exhibit 2: Listed peer comparison
Company Code Currency Market cap
(m)
EV
(m)
EV/sales
(x)
EV/gross
profit (x)
Gross
margin (%)
EV/EBITDA
(x)
Ta p t i c a TAP: LSE GBP 147 174 2.3 8.2 27.8 27.2
Criteo CRTO:NASDAQ US$ 2,820 2,432 1.8 5.2 35.7 -
SITO Mobile SITO: NASDAQ US$ 46 43 2.7 4.6 59.8 (25.4)
RNTS RNM:FRA € 254 355 4.4 14.6 30.0 (18.4)
Matomy MTMY: LON GBP 106 99 0.6 2.4 22.9 6.1
RhythmOne RTHM:LON GBP 185 162 1.0 2.5 39.8 (2.4)
Median

2.1 4.9 32.8 (2.4)
Source: Bloomberg. Note: Prices as at 1 February 2017. Sales, gross profit and net debt are last reported.

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