Research Report for Snakk Media Limited

1 November 2017

NXT Company Spotlight
Self-service growth kicking in
Snakk Media has issued its Q2 trading update and performance against
KOMs. These show signs that it may be turning a corner following
restructuring carried out over the past year and the push into self-service.
H118 revenue was up 13%, while operating expenses were down 22%. Full
interim figures to end-September are scheduled for the end of November.
In May 2017, the Manji Family Trust subscribed at a premium to additional
shares to help fu nd working capital, now holding 17.2% of the equity. A
strategic review of capital options has yet to be completed.
Emphasis on cost control
The gross margin KOM, which had been revised down earlier in the year to 58% to
reflect the change in mix, came in slightly ahead of target at 59%. The increased
focus on scalable elements of the business, such as the programmatic self-service
offering, means a different skill mix is needed to support those activities. This has
been achieved through restructuring and natural attrition, and has resulted in a
decrease in the compensation to advertising revenue ratio. With top-line growth,
this has fallen from 44% in Q118 to 37% in Q218. The staff turnover KOM at 11%
for Q2 shows the group remaining on track to meet its full-year target of 33%, but
should be noted in the context of a group with 41 employees as at end-March.
Click-through rates of 0.98% remain on target. Other strategic priorities for FY18
include growing the managed service business beyond the highly competitive NSW
market and carefully managing the South-East Asia operation. The tech platform
relationship with UberMedia, for which Snakk is the exclusive partner in Asia
Pacific, has been reinforced through the development of additional capabilities.
Capital strategy remains under review
At the end of March 2017, Snakk had a net cash position of NZ$0.6m, down from
$3.0m at end-FY16, following an operating cash outflow of NZ$2.4m (FY16: outflow
NZ$1.7m). The subscription by the Manji Family Trust raised NZ$110k post year-
end. The outcome of the appraisal of capital strategy options, announced with the
full-year results, has not yet been published.
Valuation: Drifting ahead of capital review
Snakk’s share price drifted around current levels since the review of KOMs at the
beginning of April. There is unlikely to be any significant change until there is
clarification of the group’s capital strategy, currently under review. Given the scale
of the group, comparisons to global peers are of limited use, but, for context, these
are currently trading at median multiples of 1.1x EV/sales; 4.4x EV/gross profit.
Snakk Media
Media
Price NZ$0.08
Market cap NZ$1.3m
Net cash (NZ$m) at 31 March 2017 0.6

Share price performance


Share details
Code SNK
Listing NXT
Shares in issue 16.3m

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
 Broadening range of products and services.
 UberMedia technology partnership.
 Support of Manji Family Trust.
Bear
 Heavy price competition.
 Structural reduction in gross margin.
 Capital strategy under review.
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)
03/14 7.1 2.9 (1.9) (12.0) 0.2 0.1
03/15 9.2 3.9 (4.0) (25.6) 0.2 0.1
03/16 10.5 6.6 (0.9) (6.6) 0.1 0.1
03/17 10.6 6.3 (3.2) (20.6) 0.1 0.1
Source: Company accounts
Snakk Media coverage is provided through
the NXT Research Scheme

Snakk Media | 1 November 2017 2
FY18 to date on track to meet KOMs
Snakk has now published its performance against target key operating milestones (KOMs) for
Q218. The table below shows these in context.
Exhibit 1: Performance against KOMs

Q118
(%)
Q218
(%)
H118 actual
(%)
FY18 target
(%)
Q218 target
variance (%)
Gross margin 57 59 58 58 +1.3
Compensation ratio 44 37 41 42 +11.6
Staff turnover 12 11 23 33 -2.6
Click-through rate 0.97 0.98 0.97 0.97 +0.01
Source: Snakk Media
The gross margin is notably higher than that achieved across much of the ad tech sector (see
Exhibit 2 below), which is primarily a function of its mobile focus and sophisticated data-led
approach, steering it clearer of the most commoditised areas of the market. The target level was
revised down earlier in the year with the push for growth on programmatic self-service on the
UberMedia platform – business that achieves lower gross margins but higher operating margins.
As explained above, the fall in the compensation to advertising revenue KOM reflects both the
effect of the restructuring (which will have come through more strongly from June) plus natural
attrition and the top-line progress. Staff turnover in the mobile advertising sector – and much of the
tech space – is inherently high and the 33% level for Snakk is not of itself a factor for particular
concern. Given the relatively small number of full-time staff, one or two more or fewer make a
mathematically meaningful impact on the ratio.
The click-through rate is ahead of the industry average (quoted at 0.62%), which reflects its
sophisticated targeting and geolocation capabilities.
Peer comparison
Snakk’s share price dropped sharply following the KOM updates in early April, falling from NZ$0.27
to NZ$0.09 initially. Since then, it has remained in a fairly narrow range. Using the year-end cash
balance, the group has a low (but positive) E V, which does not give particularly useful metrics for a
peer comparison based on multiples. Quoted companies in the space are currently trading at the
multiples shown below.
Exhibit 2: Listed peer comparison
Company Code Currency
Market cap
(m)
EV
(m)
EV/sales
(x)
EV/gross
profit (x)
Gross
margin (%)
EV/EBITDA
(x)
Ta p t i c a TAP: LSE GBP 272 325.3 2.3 7.1 36.5 13.1
Criteo CRTO: NASDAQ US$ 2,705 2,419.6 1.2 3.8 35.8 -
SITO Mobile SITO: NASDAQ US$ 174 174.9 5.7 10.8 54.8
Matomy Media RNM: FRA GBP 86 115.9 0.5 2.8 20.6 10.3
RhythmOne MTMY: LON GBP 138 106.8 0.7 2.1 33.9 (21.2)
Fyber RTHM: LON € 112 234.7 1.0 4.9 27.3 (27.4)
Median 1.1 4.4 34.9 N/A
Snakk Media NZ$ 1.0 0.7 0.1 0.1 59.7 -
Source: Bloomberg. Note: Prices as at 30 October 2017. Sales and net debt are last reported.

Frankfurt +49 (0)69 78 8076 960
Schumannstrasse 34b
60325 Frankfurt
Germany
London +44 (0)20 3077 5700
280 High Holborn
London, WC1V 7EE
United Kingdom
N e w York +1 646 653 7026
295 Madison Avenue, 18th Floor
10017, New York
US
Sydney +61 (0)2 8249 8342
Level 12, Office 1205
95 Pitt Street, Sydney
NSW 2000, Australia
Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector
expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including
investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ
is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison
US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by
the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com
DISCLAIMER
This report has been commissioned by NZX Limited (“NZX”) and prepared and issued by Edison Investment Research (NZ) Limited (“Edison”). This report has been prepared independently of NZX and does not represent
the opinions of NZX. NZX makes no representation in relation to acquiring, disposing of or otherwise dealing in the securities referred to in this report.
All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however neither NZX nor Edison guarantees the accuracy or completeness of this
report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in this report may not be eligible for sale in all jurisdictions or to certain
categories of investors. This research is issued in Australia by Edison Australia and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. This research is distributed
in the United States by Edison US to major US institutional investors only. Edison US is not registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers'
exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison US does not offer or provide personalised
advice. This research is distributed in New Zealand by Edison). Edison is the New Zealand subsidiary of Edison Investment Research Limited. Edison is registered on the New Zealand Financial Service Providers Register
(FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. The distribution of this document in New Zealand is not a “personalised service” and, to the extent that it contains
any financial advice, is intended only as a “class service” provided by Edison within the meaning of the New Zealand Financial Advisers Act 2008 (FAA) (ie without taking into account the particular financial situation or
goals of any person). As such, it should not be relied upon in making an investment decision. Edison publishes information about companies in which we believe our readers may be interested, for informational purposes
only, and this information reflects our sincere opinions. This report is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, this report should not be construed as a
solicitation or inducement to buy, sell, subscribe, or underwrite any securities referred to in this report. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general
information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. Edison has a restrictive policy relating to
personal dealing. Edison does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and
contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value
of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities
mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, estimates of future
results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter
to be materially different from current expectations. To the maximum extent permitted by law, NZX, Edison, either of their affiliates and contractors, and their respective directors, officers and employees will not be liable for
any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication.