Snakk Media is a young company with ambitions to expand beyond its current boundaries. The degree to which it succeeds in its ambitions and the speed with which it does so, will have a bearing on the company’s financial performance.
The company has been very much in a growth phase since its inception in 2010, and as a consequence, revenues have grown rapidly each quarter and cash burn has been high, as Snakk invested in both its platform and talent to realise its ambitions. As Exhibit 9 highlights, quarterly revenues have increased almost each concurrent quarter and certainly year on year.
Exhibit 9: Snakk Media’s revenues by quarter
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The expansion into New Zealand and Singapore accelerated revenue growth, with New Zealand in particular, delivering spectacular growth in FY15 over FY14, as Exhibit 10 illustrates.
Exhibit 10: Snakk’s sales by region by year
(NZ$m) |
2014 |
(%) |
2015 |
(%) |
Change (%) |
Australia |
6.3 |
89 |
7.2 |
78 |
14 |
New Zealand |
0.8 |
11 |
1.3 |
15 |
75 |
Singapore |
0.0 |
0 |
0.7 |
7 |
N/M |
Source: Snakk Media’s 2015 Annual Report
However, the investment in the offshore expansion, together with increased investment in talent did boost the cash burn, particularly in the first half of 2015. Management has focused on cash burn, with a NZ$1.0m reduction in operating cash outflow in the second half of 2015, assisted by increased revenue growth in the same period. This appears to have continued into 2016 with an operating loss of just NZ$114,000 in Q116 and total cash burn of NZ$147.000 for the same period.
Exhibit 11: Operating cash flow by half year, including Q116 operating cash flow
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Source: Snakk Media reports
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Snakk’s operating performance has improved over the past two years, with gross margins rising to 42% in FY15, boosted by a second half gross margin of 48%. The company reported a Q116 gross margin of 58%, which is ahead of the full-year target of 55%. As we have highlighted in Exhibit 12 and in the previous exhibit, net cash losses from operating activities rose in 2015 but have been reducing since the first half of that year, as management has focused on cash outlays.
Net assets have reduced since 2014, when Snakk last raised capital, as the company has invested its cash in working capital. This is typical of this type of business and at its stage in life. At the last balance date, Snakk had NZ$2.5m in cash and had secured a NZ$1.3m revolving credit facility on which it had not drawn. Based on past performance and the current business plan, these cash resources together with the NZ$2m equity raising should provide sufficient cash for the company’s working capital needs for at least the next 12 months.
Exhibit 12: Historical financial performance by half year and Q116
NZ$ (m) |
H114 |
H214 |
FY14 |
H115* |
H215 |
FY15* |
Q116 |
Net revenue |
3.020 |
4.036 |
7.056 |
3.962 |
5.196 |
9.158 |
2.268 |
COGS |
1.644 |
2.531 |
4.176 |
2.598 |
2.702 |
5.300 |
0.947 |
Gross margin |
1.376 |
1.505 |
2.880 |
1.364 |
2.494 |
3.858 |
1.320 |
Gross margin (%) |
46 |
37 |
41 |
34 |
48 |
42 |
58 |
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Loss after taxation |
(0.838) |
(1.054) |
(1.891) |
(2.191) |
(1.834) |
(4.024) |
(0.395) |
Net finance cost (income) |
(0.070) |
(0.104) |
(0.173 |
(0.028) |
(0.112) |
(0.140) |
(0.017) |
Depreciation |
0.007 |
0.008 |
0.015 |
0.008 |
0.017 |
0.026 |
0.010 |
EBITDA |
(0.901) |
(1.149) |
(2.050) |
(2.210) |
(1.928) |
(4.138) |
(0.402) |
EBITDA margin (%) |
(30) |
(28) |
(29) |
(56) |
(37) |
(45) |
(18) |
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Total assets |
9.077 |
9.199 |
9.199 |
7.336 |
6.447 |
6.447 |
6.043 |
Total liabilities |
2.260 |
2.909 |
2.909 |
3.045 |
3.912 |
3.912 |
3.841 |
Net assets |
6.816 |
6.290 |
6.290 |
4.292 |
2.535 |
2.535 |
2.202 |
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Net cash flows from operating activities |
(0.995) |
(0.202) |
(1.197) |
(2.533) |
(1.493) |
(4.027) |
(0.114) |
Source: Snakk Media 5 October 2015 Offer Document. Note: *Restated from reported to remove rebates and provide a like-for-like comparison.
Snakk reported its Q116 performance in early September, demonstrating a significant decline in EBITDA losses on the back of a 13.4% lift in revenues. We have undertaken a scenario analysis to consider what the FY16 result might look like if Snakk was able to maintain its Q1 revenue growth through the course of the year and if it were to meet its target of a gross margin of 55%.
As Exhibit 13 illustrates, if the Q1 result is extrapolated into the full year, Snakk could potentially deliver a significantly reduced operating loss for FY16. It should be noted that this is simply a scenario analysis and not to be taken as our forecast.
Exhibit 13: Scenario analysis: If the revenue growth rate continues and Snakk Media achieves its target margin of 55% for FY16
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Q116 |
FY16e |
Potential change on FY15 (%) |
Revenues (NZ$m) |
2.3 |
10.4 |
13 |
Gross margin (NZ$m) |
1.3 |
5.7 |
48 |
Gross margin (%) |
58 |
55 |
31 |
EBITDA (NZ$m) |
(0.4) |
(2.1) |
(50) |
EBITDA margin (%) |
(18) |
(20) |
(56) |
Source: Snakk Media, Edison Investment Research