Research Report for Snakk Media Limited

5 February 2018

NXT Company Spotlight
Improved cash performance
Snakk Media has issued its Q3 KOMs, which are broadly consistent with
its full-year targets, with an outperformance of the compensation to
revenue ratio and a higher staff turnover than indicated. This figure,
though, is highly volatile due to the small numbers involved. The company
is still undergoing a review of its capital strategy and the share price is
unlikely to recover until the outcome of this is published.
Self-service underpinning revenue growth
The gross margin KOM at 56% slightly undershot its target, but this reflects the
higher inventory cost over the peak advertising season before Christmas. The ytd
number is only a shade under the annual target of 58%, well ahead of the industry
average (Edison: 35%) and underpinned by its mobile data-driven targeting
technology, based on the UberMedia platform. There were some timing issues
benefiting the compensation revenue ratio and the staff turnover figure was inflated
by a staff member leaving and later rejoining. The self-service offer, launched in
October 2016, is growing well in Australia and New Zealand. This offers a
programmatic geomobile platform for customers who prefer to manage their own
advertising campaigns on UberMedia via Snakk. The growth of this in the mix will
depress the group’s gross margin, but should drive up the operating margin.
Operating cash outflow greatly reduced
At the end of September 2017, Snakk had a net cash position of NZ$0.5m, down
from NZ$0.6m at the year-end and from $1.6m at end-H117. The operating cash
outflow in the first half was greatly reduced at NZ$0.2m (from NZ$1.4m in H117),
with a higher level of receipts from customers (+11%) and a cost base reduced by
9%. The subscription by the Manji Family Trust raised NZ$108k post year-end, in
H118. The outcome of the appraisal of capital strategy options, announced with the
full-year results, is still to be published.
Valuation: Awaiting clarification
Snakk’s share price has continued to drift down over the last quarter from 10c to
the current level, having initially been strongly marked down post the review of
KOMs at the beginning of April 2017. We suggest that the catalyst for a significant
change will be the clarification of the group’s capital strategy, still under review.
Given the scale of the group, comparisons to global peers are of limited use but, for
context, these currently trade at median multiples of 1.1x EV/sales and 8.6x
EV/EBITDA.
Snakk Media
Media
Price NZ$0.06
Market cap NZ$1.0m
Net cash (NZ$m) at 30 September 2017 0.5

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.
 Strengthened cash performance.
Bear
 Capital strategy under review.
 Heavy price competition.
 Comparatively small scale.
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) 0.16 0.07
03/15 9.2 3.9 (4.0) (25.6) 0.12 0.05
03/16 10.5 6.6 (0.9) (6.6) 0.07 0.04
03/17 10.6 6.3 (3.2) (20.6) 0.07 0.04
Source: Company accounts
Snakk Media coverage is provided through
the NXT Research Scheme

Snakk Media | 5 February 2018 2
FY18 to date remains on track to meet KOMs
Snakk has now published its performance against target key operating milestones (KOMs) for
Q318. The table below shows these in context.
Exhibit 1: Performance against KOMs
Q118
(%)
Q218
(%)
Q318
(%)
Ytd 2018
(%)
FY18 target
(%)
Q318 ytd
target variance (%)
Gross margin 57 59 56 57 58 -1
Compensation ratio 44 37 29 36 42 +13
Staff turnover 12 11 34 51 33 -54
Click-through rate 0.97 0.98 0.98 0.98 0.97 1
Source: Snakk Media
The gross margin is notably higher than that achieved across much of the ad tech sector (see
Exhibit 3 below), which is primarily a function of its mobile focus and sophisticated data-led
approach, steering clear 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 (the group’s technology partner) platform – business that achieves lower gross margins
but higher operating margins.
The positive fall in the compensation to advertising revenue KOM reflects the continued impact of
the restructuring and the timing of natural attrition and new hires, all against growing revenues.
Staff turnover in the mobile advertising sector – and much of the tech space – is inherently high.
The commentary indicates that the full year figure will be over 50% (ahead of the official 33%
target), but this is not an inherent concern. Given the relatively small number of full-time staff, one
or two more or fewer make a mathematically meaningful impact on the ratio. One member of staff
left in Q3 but returned in Q4, inflating the recorded number.
The click-through rate remains well ahead of the industry average (quoted at 0.62%), which reflects
its sophisticated targeting and geolocation capabilities.
The KOMs and targets will be revisited at the year-end, as is standard procedure.
Interim results showed progress
Exhibit 2: Half-year revenues by geography

H117 H217 FY17 H118 Growth
Australia 3,551,681 4,432,631 7,984,312 4,423,328 25%
NZ 618,821 817,803 1,436,624 732,519 18%
Singapore 535,593 669,386 1,204,979 174,830 -67%
Total revenue 4,706,095 5,919,820 10,625,915 5,330,677 13%
Source: Company accounts
The half-year numbers showed encouraging revenue progress in the core markets of Australia and
New Zealand, while revenues in Singapore fell as the group concentrated its efforts on growing the
self-service revenues. These have grown well, accounting for NZ$937k of H118 revenues (18% of
the group total), from a standing start in October 2016. Managed service revenues were broadly flat
in the home markets of Australia and New Zealand, but fell away in Singapore.
The pre-tax loss for H118 was NZ$0.6m (against H117 at NZ$1.9m), reflecting the substantial
reduction in overheads by c NZ$1.2m (24.5%) from Q118, the full benefits of which started to be
realized from June 2017. As stated above, the operating cash outflow was greatly reduced and the
balance sheet stabilised by the cash subscription by the Manji Family Trust.

Snakk Media | 5 February 2018 3
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 continued to drift. Using the half-year cash balance of
NZ$0.5m, the group has a low (but positive) E V, but 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 3: Listed peer comparison

Quoted
Currency
Price
Market
cap (m)
EV (m)
EV/Sales
last (x)
Gross margin
last (%)
EV/EBITDA
last (x)
P/E
last (x)
Taptica GBP 6.3 302 396 3.1 36.5 15.9 24.4
Criteo US$ 25.0 1,650 1,319 0.7 35.8 7.4 20.0
SITO Mobile US$ 6.0 133 130 4.4 54.8 N/A N/A
Matomy Media GBP 0.7 67 96 0.5 20.6 8.6 N/A
Fyber € 0.8 88 213 1.2 27.3 N/A N/A
RhythmOne GBP 3.4 123 135 0.9 33.9 N/A N/A
Median 1.1 34.9 8.6 22.2
Snakk Media NZ$ 0.1 1 0.5 0.1 59.7 N/A N/A
Source: Bloomberg. Note: Prices as at 31 January 2018. Sales and net debt are last reported.

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