Snakk Media (SNK), which connects brands to mobile audiences, has announced that its Q117 gross margin was 67%, its highest ever result and well ahead of the annual target for 62%. The gross margin measure is one of four key operating milestones (KOMs) released on a quarterly basis. In addition, at just 12% in Q117, Snakk said it was comfortably inside its full year staff turnover target of 24%. However, the reported compensation to revenue ratio of 46% is higher than the full year target of 42% and the click-through rate of 0.95% for Q1 was a little below the full year target of 1.00%.
Snakk Media’s gross margin of 67% in Q117 was its highest ever quarterly result and well ahead of the 63% achieved in FY16 and the 62% target set for FY17. The company said its strategy for maintaining and growing gross margin included using sophisticated and efficient technologies to purchase advertising inventory cost effectively and maintaining premium product pricing. The company also delivered a lower than target staff turnover rate of 12%, which is well below the industry average of 33%. The compensation to revenue ratio for Q117 was 46%, which is above the full year target for 42% and due to staff hiring in Q1 to meet demand. The click-through rate of 0.95% in Q1 was above that achieved in FY16 (0.90%), but below the full year target for 1.00%. The company said this was well within the acceptable range of the full year target.
Exposed to fast growing markets
Snakk is exposed to some of the fastest growing markets for mobile advertising. The recently released IAB/PWC online advertising expenditure report found that Australia and New Zealand were the fastest growing English speaking markets globally for mobile advertising with respective growth rates of 81% and 122% in CY2015. The report also found that mobile advertising now accounts for c 50% of digital’s general display advertising and, in Australia, it had passed the A$500m mark in the March 2016 quarter.
Valuation: Trading at a steep discount to peers
Even allowing for its small size and early stage, Snakk is trading at a significant discount to its listed global peer group of quoted mobile solutions and digital advertising companies. At 0.6x FY16 EV/sales, Snakk is trading at a c 67% discount to the median consensus peer group multiple of 1.8x (see Exhibit 2).
Year
end |
Revenue
(NZ$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) |
3.3 |
1.7 |
03/14 |
7.1 |
2.9 |
(1.9) |
(12.0) |
2.2 |
0.9 |
03/15 |
9.2 |
3.9 |
(4.0) |
(25.6) |
1.6 |
0.7 |
03/16 |
10.5 |
6.6 |
(0.6) |
(3.7) |
1.0 |
0.6 |
Source: Snakk Media. Note: *EPS in prior years recalculated for share consolidation.
|
Q1 key operating milestones
Snakk announced its Q117 KOMs, demonstrating strong growth in gross margin and lower than target staff turnover. The company also announced that its compensation to revenue ratio for Q1 was a little ahead of the annual target due to staff hirings in the quarter to meet demand, and the click-through rate achieved on its campaigns was a little below the target for the full year.
Snakk set higher targets for FY17 after delivering better than target gross margin and lower than target staff turnover in FY16. Exhibit 1 sets out the Q117 KOMs achieved and the company’s targets for FY17.
Snakk is due to report its Q2 KOMs on 28 October.
Exhibit 1: Key operating milestones, Q117 actual and 2017 target
|
Q117 actual (%) |
2017 target (%) |
Click-through rate |
0.95 |
1.00 |
Gross margin |
67 |
62 |
Compensation ratio |
46 |
42 |
Staff turnover |
12 |
24 |
Even allowing for its small size and early stage, Snakk is trading at a significant discount to its listed peers. At 0.6x FY16 EV/sales, Snakk is trading at a c 67% discount to the median consensus peer group multiple of 1.8x, as Exhibit 2 demonstrates. Excluding Opera, which is trading on a high multiple, the median is still 1.2x, which still represents a c 50% premium to Snakk’s multiple.
If we were to apply the median EV/sales multiple of 1.8x to Snakk’s FY16 sales, we would arrive at an enterprise value of NZ$19m, well ahead of the company’s current EV of NZ$6.5m.
Exhibit 2: Listed peer comparison
Company |
Code |
Currency |
Market cap
(m) |
EV
(m) |
EV/sales
(x) |
EV/gross
profit (x) |
Gross margin (%) |
EV/EBITDA
(x) |
Cheetah Mobile |
CMCM.US |
US$ |
1,426 |
neg. |
N/A |
N/A |
77.1 |
N/A |
Criteo |
CRTO:NASDAQ |
US$ |
2,777 |
2,434 |
1.8 |
5.2 |
35.7 |
27.2 |
Mobile Embrace |
MBE.AX |
A$ |
155 |
145 |
4.4 |
5.4 |
82.4 |
36.5 |
Opera |
OPERA:OSLO |
NOK |
7,772 |
7,836 |
12.7 |
21.3 |
59.7 |
73.5 |
Sizmek |
SZMK:NASDAQ |
US$ |
79 |
37 |
0.2 |
0.3 |
61.2 |
2.8 |
Telenav |
TNAV:NASDAQ |
US$ |
217 |
97 |
0.6 |
1.2 |
50.8 |
3.0 |
Median |
|
|
|
|
1.8 |
5.2 |
60.5 |
27.2 |
Source: Bloomberg, Software Equity Group. Note: Prices as at 29 July 2016.
