Research Report for Snakk Media Limited

7 June 2018

NXT Company Spotlight
Loss significantly reduced to near breakeven
The restructuring initiated in FY17 started to benefit the group in Q218 and
Snakk Media finally returned to profit in its second half. Revenues for FY18
were close to the prior year at NZ$10.3m (NZ$10.6m), with increased self-
service mobile advertising revenues offset by a decline in business in
Southeast Asia (where overheads have been pared back). The cost base in
FY19e will be lower with the full-year benefit. The group had year-end cash
of NZ$1.1m, just below the current market capitalisation of NZ$1.3m.
Substantial cost reductions
Employee costs for FY18 at NZ$3.8m were down from NZ$5.8m in the prior year,
with other operating expenses also trimmed significantly to NZ$2.4m (NZ$3.7m).
The group returned a profit after tax of NZ$0.35m for H218; the first six-month
period in profit for six years. Resource was focused on those regions and activities
with the better potential for positive returns, particularly Melbourne and Brisbane,
with the Sydney team reorganised more recently. Management expects operating
expenses to be lower still in FY19, showing a full-year benefit. In Southeast Asia, it
is looking at how to offer managed services for its highly targeted geo and audience
in-app advertising on a profitable basis. Self-service, introduced as an alternative
service for clients that prefer to be more ‘hands-on’, has grown well, to 16% of
group revenues. However, with negligible visibility, management is now less
confident the momentum will be sufficient to drive growth. Snakk already gathers
and blends consumer behavioural data to inform its audience targeting for its
managed services products. It may be able to monetise this more effectively
through charging for access or for activation fees.
Financial position strengthened
At the end of March 2018, Snakk had a cash position of NZ$1.1m, up from
NZ$0.5m at the half year. There was an operating cash inflow in H218, which all but
eliminated the H118 outflow, reflecting the reduced costs. The subscription by the
Manji Family Trust raised NZ$108k in H118. Management continues to appraise
capital strategy options.
Valuation: Little for operating business
Snakk’s share price has lifted off the lows reached in April and May 2018. 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$0.08
Market cap NZ$1.3m

Share price performance


Share details
Code SNK
Listing NXT
Shares in issue 16.3m
Cash (NZ$m) at 31 March
2018
1.1

Business description
Mobile advertising technology company Snakk Media
specialises in engaging consumers. It works to
identify and target mobile audiences, whether directly
by advertising to mobile devices or indirectly using
the mobile consumer data through other channels.

Bull
 Broadening range of products and services.
 UberMedia technology partnership.
 Strengthened cash performance.
Bear
 Slower growth of self-service than anticipated.
 Highly competitive sector.
 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)
03/15 9.2 3.9 (4.0) (25.6) 0.06 0.02
03/16 10.5 6.6 (0.9) (6.6) 0.03 0.02
03/17 10.6 6.3 (3.2) (20.2) 0.04 0.02
03/18 10.3 6.0 (0.3) (1.6) 0.04 0.02
Source: Company accounts
Snakk Media coverage is provided through
the NXT Research Scheme

Snakk Media | 7 June 2018 2
FY19 revised KOMs
Snakk has now published its performance against target key operating milestones (KOMs) for
FY19e. The table below shows these in progression.
Exhibit 1: Performance against KOMs
Q118
(%)
Q218
(%)
Q318
(%)
Q418
(%)
FY18 target
(%)
FY18 actual
(%)
FY19e target
(%)
Gross margin 57 59 56 60 58 58 58
Compensation ratio 44 37 29 34 42 36 34
Staff turnover 12 11 34 10 33 53 40
Click-through rate 0.97 0.98 0.98 0.98 0.97 0.98 N/A
Source: Snakk Media
The fourth KOM is currently under review. Alternatives are being explored and a decision should be
made by the end of June 2018.
The new gross margin KOM is unchanged from prior year (target and actual), while the
compensation ratio reflects the level of underlying cost that has been taken out of the
business. Gross margin overshot the target in Q418, reflecting a greater proportion of the
higher-margin managed service income in the mix than originally forecast. The new target
compensation ratio for FY19e is in line with that achieved for Q418.
The staff turnover ratio is inherently volatile as the business employs a relatively small number of
people.
Half-by-half shows profit progression
Exhibit 2: Half-year revenues by geography (NZ$)

H117 H217 FY17 H118 H218
FY18
Growth
Revenue 4,706,095 5,919,820 10,625,915 5,330,677 4,920,716 10,251,393 -4%
Net operating
revenue 6,348,323 5,976,528 -6%
PBT (3,174,426) (266,896)
PAT (1,872,496) (1,301,930) (3,174,426) (616,798) 349,902 (266,896)
Source: Company accounts
Looking at the headline financials on a half-by-half basis shows more clearly the pattern of
improving profitability as cost has been taken out of the business. Although the revenue line has
come back 4%, this represents a combination of the growth of the self-service to NZ$1.6m and a
more substantive drop-off in managed service revenues. This was particularly notable in Southeast
Asia, where revenues were down NZ$1.1m on the prior year. Management is appraising re-
establishing this business, but only if it can be done profitably.
High levels of competition in Sydney and in New Zealand have made those markets more difficult
and Snakk has reconfigured its approach in both to target profitable growth.
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, hitting lows of NZ$0.04 in April and May
2018. Using the year-end cash balance of NZ$1.08m, the group has a small but positive EV, but
this does not give particularly useful metrics for a peer comparison based on multiples. Quoted
companies in the space are trading at the multiples shown below.

Snakk Media | 7 June 2018 3
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 1.3 1.0 0.02 58.3 N/A N/A
Source: Bloomberg. Note: Prices as at 4 June 2018. Sales and net debt are last reported.

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