Monetisation Valuation EV/EBIT (x) -4.7 -3.0 -4.8 -10.0
FCF Yield (%) -12.9 -30.6 -26.0 -16.0
Price / book (x) 2.1 5.4 -14.9 -4.6 • Focus on programmatic ads • Forecast losses FY16e/FY17e
• Hired commercial directors • Funding gap to cash flow
• Building unique content & direct
relationships with Media Agencies
breakeven end FY17
• PT of 9p based on weighting of
Sales 0.1 0.2 1.0 5.3
EBITDA -2.1 -5.1 -4.2 -2.3
• Revenue £1m FY16 / £5m FY17 EV/Sales, warrants and DCF EBIT -2.1 -5.1 -4.2 -2.3
EBIT margin (%) n/a -n/a -n/a n/a
DPS (p) 0.0 0.0 0.0 0.0 17 16 Leverage (FY) 14A 15E 16E 17E
BUY UK | SMID Technology & Gaming | BOOM LN | Market Cap £19m | 3 February 2016 Target price 9p
Publication price 4p
Audioboom - Initiation
Monetising over half a billion listens
Next events Final results March 2016
Andrew Bryant +44 (0) 20 3100 2277
Jason Holden
+44 (0) 20 3100 2278
Stock performance
12
10
8.00
Management has spent two years building a leading cloud
audio software platform for the spoken word with global
content partners and 30m listens a month. The focus now
switches to monetising the strategy. We forecast 0.6bn
6.00
4.00
2.00
0.00
Feb 15 May 15 Aug 15 Nov 15 Feb 16
"listens" this year supporting £1m of sales and providing a Audioboom Group PLC
FTSE 250
base for a revenue ramp in FY17. Risks remain but deals like today’s Google partnership and the $1bn+ valuations of
leaders in music streaming highlight the potential reward.
Summary Financials & Valuation (£m) FY - November year end
EV (FY) 14A 15E 16E 17E
Market Cap 18.7 18.7 18.7 18.7
Key points
• 2400 partners uploading audio
• Forecast 0.6bn listens this year
• Clearer roadmap to monetisation
• Focus on B2B radio opportunity
• Expansion in USA and India
Catalysts
• Resolving audio advert IT issues
• Signing more unique content
• Ramping listens/ads at Cumulus
• Visibility of monetisation strategy
• Google partnership today
Net Debt (cash) -8.9 -3.1 1.7 4.7
Pension & other adj. 0.0 0.0 0.0 0.0
EV 9.9 15.6 20.5 23.5
Valuation (FY) 14A 15E 16E 17E
P/E (x) -5.6 -3.6 -4.5 -8.3
Div Yield (%) 0.0 0.0 0.0 0.0
EV/Sales (x) 194 82.2 20.0 4.5
EV/EBITDA (x) -4.7 -3.1 -4.9 -10.4
Financials (FY) 14A 15E 16E 17E
US radio/podcast advertising spend $bn
18
15
14
13
12
2010 2011 2012 2013 2014 2015e 2016e 207e 2018e
Net Interest 0.0 0.0 0.0 0.0
PBT -2.1 -5.1 -4.2 -2.3
FD EPS (p) -0.6 -1.0 -0.8 -0.4
- vs prior forecast (%) n.a. n.a. n.a.
- vs consensus (%) n.a. n.a. n.a.
Net debt (cash) -8.9 -3.1 1.7 4.7
Net Debt/EBITDA (x ) 4.2 0.6 -0.4 -2.1
Net Debt/Mkt Cap (x) -0.5 -0.2 0.1 0.3
Source: Liberum, FactSet
Over-the-air Online
Source: BIA Kelsey
This document is a marketing communication and has been prepared and distributed by Liberum Capital Limited. It is not independent research prepared in accordance
with legal requirements designed to promote the independence of investment research and is not subject to a prohibition on dealing ahead of the dissemination of
investment research. For Reg-AC certification, see the end of the text. Liberum does and seeks to do business with companies covered in this communication. As a
result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a
single factor in making their investment decision.
Audioboom - Initiation
3 February 2016
Contents
Company dashboard 3
Investment summary 4
On-demand radio: big picture in charts 5
The Audioboom platform 7
Revenue model 12
Competition 18
Financial forecasts 20
Valuation 24
Audioboom - Liberum charts 26
Appendix 27
Financial model 28
Disclaimer 31
2
Audioboom - Initiation
3 February 2016
Audioboom is an audio player software platform that Leader in embedded short-form audio Early stage market and business model
audio content across multiple networks and Growing list of major content partners Potential need for further growth funding
geographies. This platform enables partners to FY16 ramp in monetization of listens Establishing monetisation models
deliver their content to millions of listeners worldwide
via embedded (in websites) players, mobile Growth in digital audio / podcasting
Building awareness of ad based on-demand audio
applications, Facebook & Twitter integration.
Revenue by ad type (2016e) Listens by platform (million) Key Sensitivities
In-read (£m) 2015E 2016E 2017E Driver Change Impact FY16e cash
audio App 3 24 44 No of listens +/- 10% +/- £50k
Pre roll 10% PC/mobile browser 93 115 190 % monitised +/- 10% +/- £50k
video RSS 195 424 826 Average CPM +/- 10% +/- £60k
25% Other 29 29 32 Op' expense +/- 10% +/- £60k
Company dashboard
enables the creation, broadcast and syndication of
Total 320 590 1092
Pre/mid/ post roll
audio 65%
How the target price is generated
Year Metric Implied EV Implied mkt cap Price Target Weighting
Implied valuation EV/Sales (x) FY17 5.0x 26 26 60%
Cumulus warrants @12.5p 68 30%
DCF (WACC 11%) 111 111 10%
Weighted Average Market Cap
47
FD number of shares 544 Target price (pence) 9p
Music peer group
Sound Beats Google Apple
SiriusXM Pandora Cloud (Apple) Spotify Rdio Rhapsody Deezer Tidal Music Music
Song library
Pricing
model
Countries
Subscribers
Estimated
valuation
Internet Internet 10m+ 20m+ 20m+ 20m+ 30m+ 30m+ 30m+ 30m+ 30m+
radio radio
$6.99+/ Free/ad Charges $9.99/ Free/ad $9.99/ $9.99/ Free/ad $9.99- $9.99/ $9.99/
month supported content month supported month month supported 19.99/ month month
Premium providers Premium Premium month
$4.99/ Ad support $9.99/ $9.99/
month month month
US, Canada US, Aus, NZ 50+ 100+ 50+ 85+ USA 100+ 30+ 50+ 100+
20m+ 80m active 175m 0.5m 75m active n/a 3m paying 16m active 0.5m paying n/a 15m active
paying 4m paying 20m paying 6m paying 6m paying
$22bn $3bn $1bn Acquired by $8bn Acquired by n/a $1bn $0.2bn n/a n/a
Apple c$3bn Pandora
$75m
Source: Liberum, Bloomberg,
3
Audioboom - Initiation
3 February 2016
Investment summary
The strategy is to become a leading “Distributed
Media” audio content and ad platform, delivering and
monetising audio content globally.
Deals like Google Play highlight the potential of
Audioboom's distributed media and monetization
strategy
The BOOM platform has attracted over 6000
professional content channels and 30m “listens” a
month from users.
Management are working through IT challenges of
integrating partner ads onto their on-demand
platform, while key partners such as Cumulus in the
US are committed to ramping revenues in FY16
We forecast £1m of revenue this year, rising to £5m in
FY17. While there are still short-term market and
financing challenges the potential longer-term reward
for shareholders remains significant.
• Leader in audio creation, syndication & monetisation: Audioboom has
developed an audio cloud software platform that enables the creation,
uploading, broadcast and syndication of audio content across multiple
devices, networks and geographies. Major partners can monetise their
audio content with millions of listeners worldwide via embedded players,
mobile applications, Facebook & Twitter integration.
• Audio on demand: In the UK and US around 90% of the adult population
still listen to radio and advertisers spend billions to reach them. However,
the listening experience is shifting from streams to podcasting or radio on
demand and advertisers are willing to pay more for the targeted “listens”.
Audioboom's advertising based model focuses on professional content
with the aim to replicate the success of Spotify in music and YouTube in
video. Today’s deal with Google Play highlights the partnership potential.
• Who uses the Audioboom platform? Audioboom has a successful B2C
website and app but is focussed on a B2B business model, signing over
3,000+ content partners and 6000+ channels on revenue share model,
including the BBC, Daily Telegraph, Cumulus Media, Sky, Premier League,
Reuters, CNBC, Universal and Fox. This has attracted over 30m "listens" a
month from users. The short-term focus is on signing additional large US
and Australian radio stations and adding partners in Asia and India.
• Why do partners use it? Many Content owners and radio stations
outsource their audio digital strategy to Audioboom rather than create their
own platform. This typically reduces IT costs, meets their monetisation
and scalability requirements, runs across a range of audio and OS formats
and helps ensure the widest possible audience for their content.
• Growth outlook: The sales ramp has been delayed by IT challenges in
integrating adverts into the on-demand audio format and Management
changes in key partners. These issues are being addressed and we expect
an acceleration in ad based monetisation this year. Cumulus has placed
firm backlog orders and we expect deals in the pipeline to highlight the
potential of “unique” content; some podcasts under discussion, if fully
monetised, have the potential to deliver c$1m/month of standalone sales.
• Financial forecasts: We forecast that listens over the platform increase to
0.6bn in FY16 (YE November) and 1.2bn in FY17 with growth in advertising
driving revenues of £1.0m and £5.3m respectively. End November’15 cash
was £3.1m and we forecast total costs of c£5.2m this year. The target is to
reach monthly profitability towards the end of FY17.
• Risks: We would highlight the following risks: (1) building general market
awareness for ad-based audio on-demand, (2) there are outstanding IT
and commercial issues to overcome to accelerate advertising revenues, (3)
Audioboom has limited direct competition but is competing against a
broad range of radio and broadcast media companies for a share of
advertising wallet, (4) potential funding requirement to reach profitability.
• Valuation and view: It is clearly challenging to value a Company at such
an early commercial stage but with a business model that could replicate
the success of music peers that have achieved millions of subscribers and
$1bn+ valuations. We set a Price Target of 9p (based largely on EV/Sales)
but the 18 month high of 16p helps highlights the potential if Management
can deliver a successful ad-based revenue model.
4
Audioboom - Initiation
3 February 2016
On-demand radio: big picture in charts
Radio listening is stable
In the UK and the US still around 90% of the adult population listen to radio
stations each week either over the air or streamed over the internet.
Figure 1: % of UK population that listen to radio Figure 2: % of US population that listen to radio
91%
91%
90%
90%
89%
89%
88%
2010 2011 2012 2013 2014 2015e
94%
93%
92%
91%
90%
89%
88%
87%
2010 2011 2012 2013 2014 2015e
Source: RANJAR Source: Pew Research, Nielson, Liberum
More users are listening over the internet
More consumers are listening to radio stations online and they are listening
for longer. The internet listening experience is shifting from continuous
streams of audio from radio stations to podcasting or radio on demand.
Figure 3: % US consumers listened to online radio in last wk Figure 4: US time spent listening to online radio (hours/wk) 40%
35%
30%
25%
20%
15%
10%
5%
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
2008 2009 2010 2011 2012 2013 2014 2015
Source: Edison/Triton Source: Edison/Triton
Listeners are increasingly using “mobile” devices
26% of adults in Q3’15 in the UK claim to have listened to the radio via a
mobile phone or tablet at least once per month, up 21% year-on-year.
Figure 5: UK listeners via mobile/tablet last month Figure 6: US podcast listeners preferred device
30%
25%
20%
15%
10%
5%
0%
2012 2013 2014 2015e
70%
60%
50%
40%
30%
20%
10%
0%
Computer Smartphone/tablet Other
2013 2014
Source: RAJAR/MORI Source: Edison/Triton
5
Audioboom - Initiation
3 February 2016
Listeners want radio on demand
19 million or 35% of the UK population have downloaded a Radio App and
almost half use it on a weekly basis. Around 5% of the US population
downloads four podcasts or more a week.
Figure 7: % of US listeners downloaded podcast last month Figure 8: Average podcasts consumed a week
14%
12%
10%
8%
6%
4%
2%
0%
2008 2009 2010 2011 2012 2013 2014
11 or more
10.0%
Four to Five
16.0%
Three 20.0%
21.0%
Two
22.0%
Source: Edison/Triton Source: Edison/Triton
Subscription and advertising revenue models are working
In a survey 75% of US listeners said receiving streamed adverts was a fair
price to pay for free programming on internet radio. Alternatively, Pandora
(digital radio) and Spotify (streaming music) have both successfully launched
monthly ad-free subscription models, highlighting consumer demand.
Figure 9: Adverts a fair price to pay for AM/FM radio? Figure 10: Adverts a fair price to pay for Internet Audio?
Don’t know
8.0% No
12.0%
No 20.0%
Don’t know
5.0%
Yes 80.0%
Yes 75.0%
Source: Edison/Triton Source: Edison/Triton
Radio ad spend is growing and the mix is shifting towards online
Radio advertising spend has tracked the stable listening patterns. Over the
next few years the mix is forecast to shift towards internet radio.
Figure 11: US radio ad spend ($bn) Figure 12: UK radio ad spend (£m)
18
17
16
15
14
13
12
2010 2011 2012 2013 2014 2015e 2016e 207e 2018e
Over-the-air Online
330
320
310
300
2013 2014 2015e 2016e 2017e
Source: BIA, Kelsey, Liberum estimates Source: eMarketer
6
Audioboom - Initiation
3 February 2016
The Audioboom platform
The business was founded in September 2009 and was part of Channel 4’s
seed investment programme. It was originally built and developed as a B2C
website for user generated content (music, broadcast demos etc.), allowing
individuals to record and publish audio.
• In June 2010 the company received an investment from angel investors
and UBC Media (taking an 18% stake). In 2013, UBC Media increased its
stake to 37% by converting loans into equity. Audioboom became non-
core for UBC and the business was acquired by AIM listed cash shell One
Delta in a reverse transaction in May 2014 raising £3.5m.
• Since the appointment of CEO Rob Proctor in September 2012, the focus
has been on signing premium professional content providers, developing
its platform and app technology and driving user listens. In October 2014
the Company raised a further £8m through the issue of 64m new ordinary
shares at 12.5p per share, with the Directors subscribing for 820,000
shares. Since then the increasing strategic emphasis has been on building
a B2B route to market with a focus on partner growth, international
expansion and monetisation of the platform.
• In their full-year trading update (announced December) Management
announced that in Q4’FY15 the number of "listens" (that is, the number of
times users consume Audioboom content) exceeded 94 million, 859 new
content channels were added, registered users reached 4.6m and over
690,000 total mobile apps were installed. The company is now based in
London, New York, Melbourne, and Mumbai and employs around 40 staff.
• The share price has been volatile over the last two years most recently
reflecting delays in the revenue ramp. In addition in September last year
one of the founding shareholders of Audioboom 7Digital Group plc sold
their 10.8% stake to institutional and individual investors.
Figure 13: BOOM share price (£)
0.21
0.16
0.11
0.06
0.01
AUDIOBOOM GROUP PL
Source: Bloomberg
The platform: local creation, global syndication
Audioboom’s audio player software has been developed over 7 years, with
£10m+ invested in the platform. At the centre of the IP is the proprietary
embedded player software that enables audio content to be created,
uploaded and delivered across a range of platforms (media owners website,
other websites, mobile, tablet, iOS, Android etc.).
• What is audio content? There are many music platforms such as Apple
Music and Spotify that deliver music to consumers paid for by advertising
7
Audioboom - Initiation
3 February 2016
and subscriptions. Audioboom is one of very few companies attempting to
build a similar platform for on-demand radio and the "spoken word" i.e.
interviews, news and sports events, entertainment, talk radio, serial drama
etc.
• Building barriers to entry: Being the first-mover in spoken word has
enabled Audioboom to sign the leading content owners, providing barriers
to entry. The strategy is to create the world’s first aggregated audio
content creation, syndication and advertising network based on a revenue
share model with partners.
• Content Management: In summary the platform provides the tools to:
1. Capture and publish (to websites) audio digital recordings. The proprietary
HTML5 player enables users to embed audio clips straight into their own
websites.
2. The potential to dynamically insert audio and video advertising both pre
and post listen.
3. Publish links to the audio in channels such as Twitter or Facebook as well
as in App stores and own websites. All the content is uploaded and stored
on the platform with users seamlessly "clicking through" an embedded
player or RSS feed onto the Audioboom platform.
4. Syndicate the links and content globally via the platform.
• Data Analysis: The platform provides analysis and reporting of the
audience the content reaches. Audioboom is able to monitor figures on
listens and, if the listener is a registered user, demographic details of the
audience for that content. This clearly adds to the value for advertisers.
• Scalable architecture: The cloud architecture was built using the Ruby
programming language and the Ruby on Rails open source framework,
which means it is scalable and cost effective to develop further. The
platform is hosted on the Amazon cloud and therefore usage capacity and
costs can be scaled up cost effectively.
Content partners
Traditional radio broadcasters: the “digitalisation” challenge
Media content owners and traditional radio stations typically broadcast long
format talk shows containing interviews, phone-ins, breaking news etc. These
types of audio typically are a component of a broad commercial advertising
package sold directly to media buyers or brand owners. There is increasing
recognition from the radio industry that they need to change and offer “on-
demand” audio to their audiences. This reflects the changing ways listeners
are rapidly transitioning to consuming audio in a “smart device” world (in the
car, on their way to work on a smartphone etc.). In addition, it opens up new
opportunities for the content owners to re-package and incrementally
monetise their audio investment.
Short-form provides an opportunity to re-use and monetise content
Content owners are therefore increasingly editing down longer broadcasts
into the "best bits" and “podcasting” shorter broadcasts into sub 1 hour
formats (often as short as a few minutes). These types of audio can be
syndicated around the internet (either within a media company’s own
commercial assets or to partners) and directly monetised with advertising (in
the same way most videos on YouTube have pre-play adverts).
8
Audioboom - Initiation
3 February 2016
Why do content partners outsource to Audioboom?
Many owners and creators of short-form audio content have attempted to
build their own digital creation and distribution platforms. However;
1. The “embedded player” software ensuring the audio runs across all
operation systems and platforms is complex
2. It is technically and commercially challenging to optimise the serving of
advertising
3. Content owners need partner networks to maximise the global syndication
of the audio. For traditional broadcast the target audience is limited to the
geographic or license restrictions of the radio station.
4. Radio stations want to protect their existing on-air advertising model and
therefore need a non-conflicting strategy for short-form podcast audio.
Many Content owners have therefore outsourced content management and
distribution to Audioboom rather than create their own platform. This typically
reduces their IT costs (ease-of-use vs developing, hosting and updating their
own platform), meets their monetisation and scalability requirements, runs
across a range of audio and OS formats and helps ensure the widest possible
audience for their content.
Google deal
To put the investment (in both IT and partner network) and competitive
position of Audioboom's platform in context today it has been announced
that the Company have been selected as a key US partner to supply audio
content (both Audioboom created and partner content) into Google Play. This
does not change the short-term financial outlook but deals like Google Play
highlight the potential of Audioboom's distributed media and monetization
strategy and potentially could add sizeable income in the medium-term.
B2B2C strategy: growth in professional content partners
Audioboom has chosen to focus on professional content and has signed over
6,000 active content channels so far, including the BBC, Telegraph, Cumulus
Media, Sky Sports, Premier League, Reuters, CNBC, Universal, Fox,
Associated Press, News International, Astro (Malaysia) and the recently
announced Eros International (India). Many of these partners have multiple
audio channels. The short-term focus of Management is on signing additional
large US and Australian radio stations and adding to the partner list in Asia
and India.
Figure 14: Audioboom number of content channels
8000
7000
6000
5000
4000
3000
2000
1000
0
FY14 FY15
Source: Audioboom
9
Audioboom - Initiation
3 February 2016
Multiple channels to listens
As we have highlighted for these content owners the platform enables short-
form audio playback over a number of channels; embedded in their own
website, via the Audioboom website and app, Twitter or Facebook feeds, and
submitted to iTunes as a podcast.
• Browser / website: Audioboom.com was developed as a traditional B2C
website (for access over desktop, laptop, tablet etc.) and the site remains
an important channel to listens (https://audioboom.com/). We estimate
listens over a desktop or mobile web browser (either Audioboom or
partner websites) will still account for c20% of total listens in FY16.
However, over the last 12 months the Company has reduced its B2C
marketing spend as the focus of the business has switched to the B2B
opportunities with partners.
• Audioboom app – building social media: Much of the Group’s software
investment over the last two years has been focused on developing the
mobile app. Like the website the app requires users to provide sign-in
information increasing the potential value to advertisers. Up until now
management has chosen not to place adverts on the mobile app to
encourage user growth but this is under review. The app uses data
analytics and can provide relevant, suggested and automatically
downloaded audio to subscribers. In additon, the R&D is being leveraged
to help partners (eg Eros International in India) to co-develop audio
content on their apps.
Figure 15: Audioboom app Figure 16: Audioboom app
Source: company Source: company
• RSS feeds – partners directing traffic back to Audioboom: An RSS
feed works by creating a source of data in readable, standardised way,
allowing other websites and applications to process that content and
make it readable / listenable for users. This enables other sites (for
example radio stations) to pull the audio from the Audioboom content
system onto their own websites and also be uploaded to iTunes,
Facebook, Twitter etc. As we have highlighted above as content owners
and radio stations increasingly outsource short-form audio to Audioboom
and embed feeds in their own sites and on iTunes we expect RSS to be
the fastest growing channel.
10
Audioboom - Initiation
3 February 2016
Figure 17: Breakdown of forecasts listens by channel FY16e Figure 18: Breakdown of forecast listens by channel FY17e
Other 5%
Audioboom
app
4%
Desktop /Mobile browser
19%
Other 3%
Audioboom
app
4%
Desktop/ Mobile
browser
17.4%
RSS Feeds 72%
RSS Feeds 76%
Source: Liberum estimates Source: Liberum estimates
Global distribution
Audioboom operates in a global market and serves an international audience
with the 4.6m registered users split approximately 32% in the UK, 48% in the
US, 10% 14% in Asia and 4% in Australia. However, currently the geographic
split of listens is 23% UK, 52% US, 7% Asia and 10% in Australia. While its
content is mostly English language, there is no barrier to content in other
languages. Going forward we expect the highest listens growth in the US and
Asia (driven by momentum in partner content rather than Audioboom B2C
marketing).
Figure 19: Listens / registered users by geography
100%
80%
60%
40%
20%
0%
Today End FY16e End FY17e
UK USA Australasia Asia ROW
Source: Liberum estimates
Building an Audio Ad network
Audioboom’s commercial strategy is similar to Spotify’s recent success in the
music download market. Spotify attracts listeners initially into a free, ad-
supported app. This free service allows users to play any song from the
Spotify catalogue on-demand but the users must view and listen to
advertisements that interrupt their listening. Advertisers pay Spotify for
exposure to these users and in-turn this funds the royalties that Spotify pays
the content providers. Currently, this ad-based income channel generates
approaching £100m of gross revenue for Spotify. Audioboom has a similar
advertising and revenue share based commercial strategy.
B2B “Distributed Media” audio content and ad platform
The major commercial opportunity for Audioboom is therefore to become one
of the leading networks bringing together short-form audio on demand,
listeners and advertisers. Nearly every listen provides an opportunity to insert
an advert (there are exceptions such as the BBC for example). The user
registration process and the ability to track the location, title, description,
category etc. of listens support the value for advertisers.
11
Audioboom - Initiation
3 February 2016
Pre
ro
ll a
ud
io o
r vi
de
o
Po
st r
oll
au
dio
Revenue model
At the centre of the revenue model is the ad based monetisation of content or
listens. Each listen across a range of devices provides the opportunity to
place traditional audio or video adds at the beginning, end and middle of the
content, while higher-value in-Read is a significant medium-term opportunity.
Figure 20: Audioboom: how it works
Partner creates audio file
Creative
opportunity to
add in-Read ads
Partner uploads content to audioBoom
Advert selected and served
Programmatic
capability to add
pre/mid/post roll
audio and video
adverts
Audioboom serves content and advert
Listen data and revenue split reported
Source: Liberum
Pre, mid and post roll audio adverts
A pre-roll audio ad plays before the content / audio runs. These
advertisements are often repurposed television / video ads, typically
shortened to 10 or 15 seconds. Pre-roll ads are the most common form of
advertisement although the same format can be positioned at intervals in the
audio (mid-roll) or at the end (post-roll ads). Management expect to complete
the development of a mid-roll dynamic insertion tool by end Q1’16 which will
significantly increase the available ad slots on each audio listen i.e. on a 20
minute broadcast the opportunity to place 4 adverts at 5 minute intervals
rather than simply pre and post.
Figure 21: Impact of dynamic mid-roll insertion
Opportunity to add mid-roll audio
0 Minutes 20
Source: Liberum
12
Audioboom - Initiation
3 February 2016
Pre-roll video
When viewers are listening to content over a desktop or tablet there is the
opportunity to run higher value video adds i.e. users are more likely to be
watching the screen than when listening over the app on a smartphone. For
Audioboom there is a major pool of advertising inventory applicable to audio
broadcast (as highlighted the challenge has been internal IT issues at partner
WideOrbit which has delayed the serving of ads). The value or CPM for these
video add slots is higher because typically user interaction and click-through
rates are greater.
In-Read advertising
In-Read advertising is where the presenter of the audio promotes a product
during the broadcast. This may take the form of a read advertisement or a
recommendation or positive review of a product. Clearly creating and
inserting these bespoke adverts is more challenging than off-the-shelf audio
or video ads but the personal endorsement from a broadcaster or a guest
with a high user following clearly drives a far greater ROI and is therefore very
attractive to advertisers.
Mix of CPM’s
CPM is the price paid by advertisers for 1,000 advertisement
impressions/users on a webpage or in this case a listen. Most audio content
on the Audioboom site lasts just a few minutes but may be over an hour -
typically where a radio station is editing down a 2 or 3 hour show or where
Audioboom has commissioned a specific podcast (e.g. Russell Brand).
Audioboom receives income or CPM for each advert placed with the amount
varying depending on a number of factors which influence the expected ROI.
• Pre/mid/post roll: Depending upon the value of the audio pre-roll audio
CPMs are typically less than $5, while video can be in the range $8-15.
Mid-roll typically has higher listen to rates and therefore has a higher CPM.
• In-Read: The value of In-Read is clearly a lot higher and will typically be
sold directly to media buyers brand owners and not programmatically.
Audioboom may look at agreeing longer-term deals but on a per advert
basis CPMs could be very high given the evidently greater ROIs. Podcast
network Midroll Media, report CPMs between $15 and $40 depending on
the show and placement. They also report that in internal surveys they
found that over 60% of listeners bought something a host had promoted
on his show. Audioboom are in discussions with Midroll about partnering
for in-Read ad placement in the US.
Figure 22: Forecast CPM for Audioboom audio content
25
20
15
10
5
0
Pre/mid/post roll audio Pre roll video In-read audio
Source: Liberum estimates
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Audioboom - Initiation
3 February 2016
• Other factors: The CPM will be influenced by the value of the content i.e.
the forecast demand in listening to it. For example a Star Wars film, or a
breaking news exclusive interview will have a higher than average CPM. In
addition the more data that Audioboom has on the listener the higher the
targeting and forecast ROI. In the US a major opportunity is to sign
partnerships with agencies that can bring local advertising inventory. If for
example a US radio station is running a sports podcast across 100 of their
regional networks there is greater value from promoting local stores and
deals than from simple nationwide brand marketing.
Ad revenues: Direct vs Programmatic
Revenues earned over recent months have largely been generated from direct
negotiations with brand owners and particularly media buying agencies. In
these discussions Management have to “pitch” the advertising merits of audio
on demand versus the other ad buying options within the overall advertising
budget (i.e. traditional radio through to print, TV etc.). This is challenging given
that the Audioboom platform is still relatively immature. However, over the
next two years as the understanding of the reach of the platform increases we
expect ad budget share to rise. In addition as the Company delivers
increasing volume of high-value unique content it is more straightforward to
negotiate direct deals. This will be a key KPI of the recently hired commercial
directors.
Audio advertising spend moving towards on-demand
Not surprisingly spend on audio advertising is growing slower than other
media. However, importantly in the US alone it remains a $16bn market and in
our view there will be demand from the brand owners to accelerate the shift in
this spend towards targeted (the data on users can support higher ROIs) on-
demand audio. Breaking down the data further is complicated by the mix
between on-air music and talk radio. However, we estimate global ad budgets
for on-demand or podcast audio probably scales up towards a $1bn
opportunity in the short-term.
Figure 23: US ad spend growth 2015 by media Figure 24: US ad spend by media
15.0%
10.0%
TV
42.2%
Digital 28.3%
5.0%
0.0%
-5.0%
-10.0%
Total Digital Outdoor Cinema Radio TV Print
Cinema 0.4%
Outdoor 4.7%
Radio 9.4%
15.0%
Source: Strategy Analytics Source: Strategy Analytics
Revenue share model
Audioboom’s content is not subject to PRS/ music royalty payments. For
example Spotify pays 70% of its revenue to content rights holders. In
contrast, Audioboom rather than paying for rights the Company shares
advertising revenue with content providers. Revenue share agreements vary
but on average they are broadly a 50:50 split between Audioboom and the
content creator and owner.
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3 February 2016
Figure 25: Revenue share with Content providers - BOOM vs Digital music comps
100%
80%
60%
40%
20%
0%
Digital Music comps Audioboom
Retained Paid to content providers
Source: Liberum estimates
Premium subscription models
A premium ad-free service is now also a common revenue model in the digital
music sector. While Spotify offers a free ad-based service, they drive users to
a premium subscription. Most other services only offer subscriptions with the
average price around $10 per month. We expect Management to monitor the
potential for a subscription model as the volume and quality of the content
continues to increase but we do not expect a premium launch in the medium-
term.
Revenue factors to watch
Our forecasts are based upon assumed sequential growth in the number of
listens through FY16/17 and higher rates of monetisation of those listens.
However, there are several factors which are potential major swing items in
the revenue outlook.
Programmatic
Key to the success of Audioboom (and certainly the main sensitivity in our
medium term forecasts) is the build out of a fully programmatic ad capability
is the IT automation of the buying process for ads. Rather than have humans
identify and value ad spots on an ad network, programmatic algorithms seek
them out automatically based on criteria determined by the advertiser. The
model is well understood and mature in the browser and indeed streaming
music environment but is fairly immature in audio. Audioboom has two key
advertising partnerships;
• Audio platform - DAX Global – owners of Heart, Capital, Capital XTRA,
Classic FM, Smooth, LBC, Radio X and Gold broadcasting to 24m
listeners each week – who have a developed an audio advertising platform
integrated with demand side platforms and trading desks. Over time we
expect Audioboom to add other platform partners.
• Programmatic - Audioboom partners with WideOrbit and Triton who
programmatically integrate video adverts into audio content. Again
Management are in discussions that can broaden their programmatic
partner network.
To date the lower than expected revenue ramp at Audioboom has partly
reflected the slow pace of progress in programmatically integrating inventory
of adverting applicable to the on-demand audio format– typically a video or
dedicated audio ad. While, the technical and commercial models for
integrating ads into streaming radio and music are fairly mature the partner
networks have found it more challenging integrating with on-demand audio
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Audioboom - Initiation
3 February 2016
(the Audioboom proposition). These issues are being addressed and we
expect programmatic ad revenues to ramp from H2'16.
Cumulus Media
Major US partner Cumulus Media (NASDAQ:CMLS) is an example of a radio
station that had previously attempted to build their own platform to syndicate
their “best of the best” radio content across their radio networks.
• Key agreement: In July last year Cumulus partnered with Audioboom’s to
provide an on-demand creative, hosting, broadcasting and advertising
platform for the entire Cumulus Media and Westwood One radio network
as part of a multiyear agreement. Cumulus delivers premium content to
245 million people each week through its 454 owned-and-operated
stations covering media, sports and entertainment. As part of the
agreement Cumulus is sourcing audio advertising for the platform.
• Monetisation slower than expected: Progress with Cumulus has been
slower than expected in part impacted by the recent appointment of a new
Chief Executive. She is focussed on their digital strategy and as their main
digital partner this should be supportive for Audioboom.
• Expect Q1’16 Cumulus bookings: Strategically we believe Audioboom
remains very important to Cumulus and recent meetings between the two
companies have been encouraging. In Q1'16 Cumulus has sourced audio
advertising from major US companies which we believe adds up to an
orderbook opportunity (Audioboom needs to successfully place these
committed ads onto content) of over $300k for the Group.
Unique content
We expect the Company to increasingly partner with high value “unique” audio
content where the visibility of monetisation is significantly higher. For example
in the radio market Audioboom has agreed that Westwood One’s “The Mark
Levin Show” will be on the platform. The controversial talk show host has a
nationwide listener base of millions across all of Cumulus’ stations nationwide,
and is now one of the top five most-listened-to programs in America.
Westwood One has recently extended their contract with Mark Levin until
2020. His live shows and podcasts attract 5-10m listens and there is the
opportunity to add pre/mid roll national/local advertising and the higher value
in-Read. For illustration a $10 CPM on 5m listens would generate $50,000 a
show of gross revenue just across the US. There is upside from the
completion of the dynamic mid-roll insertion tool which will enable multiple
advertising slots across a one hour podcast. Management believe some of
the unique content under discussion has the potential to drive up to $1m a
month of standalone revenues.
The mobile device manufacturers: Partnership with Google Play
Clearly, the “music stores” of the mobile device manufacturers are huge.
Apple has reportedly passed 10m subscribers for its music streaming service,
taking six months to hit a milestone that took it Spotify six years to hit. Apple
may well become the dominant music downloading platform (and a key
download channel for Audioboom and all podcasters) but the ambition of
Google has been less clear. Its music store offering is significantly less mature
(they give very little data).
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Audioboom - Initiation
3 February 2016
However, this quarter Google Play is going through a major commercial re-
launch and as part of that there is a renewed focus on the spoken word.
Today it has been announced that Audioboom have been selected as a key
US partner to supply audio content (both Audioboom created and partner
content) into Google Play. This does not change the short-term financial
outlook but deals like Google Play highlight the potential of Audioboom’s
distributed media and monetization strategy and potentially could add
sizeable income in the medium-term. Audioboom has been selected as one of
11 content partners for the new look application and is the only non-US
based content partner to be selected.
Commercial directors
The Company has recently hired Commercial directors for the UK and India
and we expect them to build revenue generating relationships directly with
media buyers and brand owners. Additionally the company is actively seeking
to appoint its USA commercial director to be located at its NYC offices.
India: major market
There is upside from any potential success in the Asian and Indian markets.
We only expect minimal revenues this year from the agreement with Eros
International but the opportunity is sizeable (they have c30m registered
users). Audioboom are responsible for all of their audio content curation
(music and spoken word), ad sales and ad campaign delivery within the audio
section of the ErosNow mobile and web applications.
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3 February 2016
Competition
As with many technology led companies the main competition in their target
market is in-house development (i.e. radio stations monetising their short-
form content on their own websites – this was the Cumulus strategy before
they partnered with Audioboom).
Direct competition: Swedish start-up Acast
The main direct competitor is Swedish audio start-up Acast. Headquartered
in Stockholm and founded by ex-Spotify executives the Company first
launched in Sweden in April 2014, and opened a London office in October
2014. Similarly to Audioboom, Acast is a podcasting app and web service
that provides free, on-demand audio content, available for Android, iOS, and
desktop. The service is reported to have 1 million users (i.e. much smaller
than Audioboom) and UK content partners include Naked Scientists,
Spectator and ASOS. In May 2015, Acast closed a $5m Series a funding
round, led by Bonnier Growth Media, followed by an undisclosed investment
from early-stage VC firm MOOR, which is owned by serial entrepreneur Kaj
Hed, majority owner of Rovio Entertainment, creators of Angry Birds.
Music platforms: BOOM replicating for spoken word
There are clearly a number of substantial and well established music based
platforms (both ad led and premium). These have the potential to evolve their
models to focus on the spoken word (only Sound Cloud has any real current
ambition to do this) but more importantly give an indication of potential user
growth and valuations in the sector if Audioboom can replicate their success.
Below we pick out three examples with slightly different business models.
Figure 26: Similar online audio business models
Sound Beats Google Apple
SiriusXM Pandora Cloud (Apple) Spotify Rdio Rhapsody Deezer Tidal Music Music
Song library
Pricing
model
Countries
Subscribers
Estimated
valuation
Internet Internet 10m+ 20m+ 20m+ 20m+ 30m+ 30m+ 30m+ 30m+ 30m+
radio radio
$6.99+/ Free/ad Charges $9.99/ Free/ad $9.99/ $9.99/ Free/ad $9.99- $9.99/ $9.99/
month supported content month supported month month supported 19.99/ month month
Premium providers Premium Premium month
$4.99/ Ad support $9.99/ $9.99/
month month month
US, Canada US, Aus, NZ 50+ 100+ 50+ 85+ USA 100+ 30+ 50+ 100+
20m+ 80m active 175m 0.5m 75m active n/a 3m paying 16m active 0.5m paying n/a 15m active
paying 4m paying 20m paying 6m paying 6m paying
$22bn $3bn $1bn Acquired by $8bn Acquired by n/a $1bn $0.2bn n/a n/a
Apple c$3bn Pandora
$75m
Source: Company websites, Wikipedia, Forbes, Liberum
Content creation: SoundCloud
SoundCloud is a Berlin-based social sound platform that allows users to
record and upload audio content to its website (soundcloud.com). Launched
in 2008, it is predominantly music-based, and has a focus on user-generated
as opposed to professional content (similar to the early launch of
Audioboom). The company charges content providers for uploading their
audio content with a free ad-supported offering to listeners. Among
SoundCloud's key features is the ability to allow artists to upload their music
with a distinctive URL. By allowing sound files to be embedded anywhere,
18
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3 February 2016
SoundCloud can be combined with Twitter and Facebook to let members
reach a wider audience and promote their content. There is little public
information but we estimate the site has over 200m users and is rumoured to
be valued at around $1bn (lower than other sites because they have been less
successful than others in monetising these users). The company has recently
reportedly raised $35m in debt funding.
Premium listeners: Spotify
Spotify is a music streaming service, providing users in over 50 countries with
access to a range of music content including copyright material from major
record labels. This triggers PRS fees, with Spotify having paid more than $3bn
in PRS since its inception in2008. Users have the option to listen for free,
which is supported by revenue from advertising, or subscribe for a premium
account (currently $10 per month), which does not include advertising and
allows users to download music and listen offline. Spotify is believed to have
75m active users, of which 20m are paying subscribers. This supports
revenues of over $1bn (c90% from premium subscriptions) and a rumoured
valuation of c$8bn.
Figure 27: Spotify revenues $m
1200
1000
800
600
400
200
0
2009 2010 2011 2012 2013 2014
Source: company
Self-learning internet radio: Pandora
Pandora founded in 2000 as a data driven music project, is listed on the New
York Stock Exchange (NYSE: P) with a market capitalisation of $2.8bn. It is a
music streaming service serving the US, Australia and New Zealand. It uses
machine learning to create a profile of users that learns the type of content
they are interested in and pushes it to them. The user provides positive or
negative feedback for songs chosen by the service, which are taken into
account when Pandora selects future songs. Users can create up to 100
unique "stations." It is available as either a free, advertising-led service or on
subscription at $5 per month. It is estimated the company has c80m
subscribers of which 5% take a premium paid-for service. The company is
forecast to generate c$50m of EBITDA this year on $1.2bn of revenue.
Strategically the business has expanded through M&A into other verticals
such as ticketing.
Sector M&A: Vivendi / Radionomy Group
Interestingly last month Vivendi announced that it acquired 64.4% of
Radionomy Group. Radionomy is a platform that allows digital radio stations
to stream their broadcasts and monetize their programs. Today, over 57,000
radio stations are using these tools. While Radionomy is not directly
comparable to Audioboom the acquisition highlights the interest amongst
large traditional media companies in capturing the value and growth in digital
internet radio.
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3 February 2016
Financial forecasts
The trading update for the year ended November 2015 showed lower revenue
growth than expected but a broadly “in-line” performance in EBITDA and YE
cash. Final results are expected to be in early March 2016.
• Revenues increased significantly on the previous year but were below
market expectations. Real growth only began towards the end of the
fourth quarter with revenues in that quarter more than double the previous
three quarters combined and growth is expected to continue into the first
quarter of FY16.
• Overall operating performance measured at the EBITDA level and the
financial position for FY15 was broadly in line with market expectations.
The year-end cash balance was c£3.1m.
• In terms of outlook the Board highlighted that "the Company has full
confidence that additional revenues, both from Cumulus and elsewhere,
will begin to come through in the early part of this new financial year. This
shift in timing and pace of adoption will have an impact on expected full
year revenues for 2016 although the year is still expected to show
substantial incremental growth year-on-year”.
• The Company continues to target monthly profitability and positive cash
generation towards the end of FY17.
Liberum forecast growth in subscribers and listens
Audioboom has c4.6m registered users and over the year there were a total of
2.6 million mobile app installs. This highlights growing adoption but the key
operating financial KPI is the he number of "listens" (the number of times
users consume Audioboom content through the website, the iOS and Android
apps, and via the embeddable content players).
• As we have highlighted each “listen” is a revenue opportunity for the
Company. Total listens for the fourth quarter were over 94m (a new
quarterly record), with November setting a new monthly record of 33
million. Total listens for FY15 exceeded 300 million (12 months to 30
November 2014: 180 million).
• In our model we assume that the number of listens grows at 20%
sequentially each quarter in FY16. This is largely driven by the ramp at
Cumulus and the on-boarding of new US radio stations. We therefore
assume there are 590m listens in FY16 and 1092m in FY17.
Figure 28: Number of listens per quarter (m)
350
300
250
200
150
100
50
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17
Source: Liberum estimates
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Breakdown of listens by platform
As we have highlighted listeners have three key channels to reach Audioboom
content; (1) over a desktop or mobile web browser, (2) downloading the iOS
or Android mobile App, (3) streaming (podcasting) content over RSS feeds
from iTunes or a website (radio station etc). In FY16 we assume that RSS
feeds account for 72% of listens and traditional desktop and mobile browser
listens 19%. We assume that the Audioboom App only accounts for 4% of
listens
Figure 29: Listens by platform FY16e
Other 5%
Audioboom
app 4%
Desktop /Mobile browser
19%
RSS Feeds 72%
Source: Liberum estimates
Monetised listens
To try and encourage the growth in App downloads the strategy so far by
Management has been to keep the mobile App experience advertising free
(we expect this to be reviewed this year and there is clearly scope to add pre
and post audio roll ads). Therefore the chief ad-placement opportunity for the
Group is listens over a browser and RSS feeds. As we have highlighted, to
date the number of adverts placed per 1000 listens has been very low largely
reflecting the slow pace of developing advertising relationships and the
delays in building a programmatic capability. As these both improve we
assume the percentage of listens that contain a revenue generating advert
increases to over half by Q4’FY17.
Figure 30: % of listens monetized (serving an advert) Figure 31: Monetized listens by channel
350
300
250
200
150
100
50
0
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17
70%
60%
50%
40%
30%
20%
10%
0%
250
200
150
100
50
0
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17
Total Listens (m) Monetized listens % monetized Audioboom app Desktop/Mobile browser RSS Feeds Other
Source: Liberum estimates Source: Liberum estimates
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CPMs and advertising revenue assumptions
We assume monetized listens breakdown between audio, video and in-Read.
Our detailed assumptions are shown in Figure 55. Our CPM expectations are
shown below. The increase in the average value of monetized pre/mid/post
roll audio CPM over the next two years reflects the positive volume impact of
the dynamic mid-roll insertion capability (the highlighted opportunity to add
multiple ads mid-roll into audio content).
Figure 32: CPM assumptions
Advertising CPM (£) Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17
Pre/mid/post roll audio 5 5 5 5 6 6 7 7
Pre roll video 10 10 10 10 10 10 10 10
In-read audio 20 20 20 20 20 20 20 20
Source: Liberum estimates
Figure 33: Revenue by advertising stream (£'000)
2500
2000
1500
1000
500
0
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17
Pre/mid/post roll audio Pre roll video In-read audio
Source: Liberum estimates
Group revenue forecasts
The assumptions above drive sequentially growing quarterly revenue growth
which adds up to an annualised £1.0m in FY16 and £5.3m in FY17.
Figure 34: Revenue forecasts by quarter (£k) Figure 35: Annual revenue forecasts (£m)
£2500k
£6.0m
£2000k
£5.0m
£1500k
£1000k
£500k
£4.0m £3.0m £2.0m £1.0m
£0k
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17
£0.0m
FY15 FY16e FY17e
Source: Liberum estimates Source: Liberum estimates
Cost assumptions
In FY15 Cost of Goods Sold was greater than revenue reflecting the
investment in broadcasting (i.e. paying for talent and unique broadcasts).
However, in FY16 and FY17 we expect this to reduce and also assume lower
marketing spend as the strategy focuses less on B2C and more on B2B. In
our model we assume gross margins of 50% in FY16 and FY17 and expect
stable operating costs in the range £4.5m to £5.0m
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3 February 2016
Profit and cash flow estimates
These revenue and cost assumptions flow through into a forecast Adjusted
PTP loss of £4.3m in FY16 and £2.3m in FY17. These forecasts are broadly
consistent with the Board's target of profitability towards the end of FY17.
This analysis highlights a funding gap to reach profitability / cash flow
breakeven.
Figure 36: Financials summary
Finnacials Summary£'000 Nov '13 Nov '14 Nov '15 Nov '16 Nov '17
Act Act Est Est Est
Revenue 45 51 190 1,026 5,276
EBITDA (1,533) (2,105) (5,106) (4,187) (2,262)
Pre-tax Profit Adj (1,552) (2,094) (5,121) (4,227) (2,342)
Net Cash (debt) end of period 22 8,867 3,137 (1,742) (4,741)
Source: Liberum estimates
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Audioboom - Initiation
3 February 2016
OUTPUTS
De ri ve d EV of op e ra ti on s 110.8
Pe ns i on (de fi ci t)
Ne t ca s h / (de bt)
0.0
-
Implied market cap 110.8
NOSH (m) 543.0
Fair value per share (£) 0.20
Explicit forecasts Middle
Period
(1st cashflow)
Terminal
Period
(1st cashflow)
2016 2017 2018 2019 2024
1.0
(4.2)
n/a
0.0
5.3
(2.3)
n/a
0.1
14.3
1.7
n/a
0.1
21.5
2.2
10.0%
0.1
112.7
22.5
20.0%
0.6
(4.2)
0.0
(0.2)
(0.1)
(2.3)
0.0
(0.2)
(0.1)
1.8
0.0
(0.3)
(0.1)
2.3
(0.3)
(0.4)
(0.1)
23.2
(4.5)
(1.9)
(0.6)
(4.4) (2.5) 1.3 1.5 16.1
WACC DRIVERS
Cost of equity (%) Ri s k fre e ra te (%)
Be ta
Equi ty ri s k pre mi um (%)
3.0
1.4
5.5
CAPM unl e ve ra ge d di s count ra te
Cost of debt (%)
Ave ra ge s p re a d ove r ri s k-fre e ra te (%)
Pre -ta x cos t of d e b t (%)
Ave ra ge corp ora te ta x ra te for comp a n y (%)
Pos t-ta x cos t of d e b t (%)
Es ti ma te d ta rge t ge a ri n g (n e t d e b t/mkt ca p ) (%)
WACC (%)
10.5
2.5
5.5
15.0
4.7
-
10.5
Valuation
(1) Discounted cash flows
A DCF approach to valuing Audioboom is clearly entirely weighted to the
terminal period value. The table below assumes in the long-term Audioboom
generates £15m-£20m of cash a year on c£100m+ of revenue. Applying a
WACC of 10.5% drives a discounted equity value of £111m or 20p a share
(just above the two year high for the share price).
Figure 37: DCF
Turnove r
Unde rl yi ng EBI TA
- EBITA margin (%)
Add ba ck De pre ci a ti on
EBI TDA
Taxation (EBI TA * ta x ra te )
Le s s i n cre a s e /a d d d e cre a s e i n Worki n g Ca p i ta l
Le s s Ca p e x
Fre e Ca s h fl ow for th e Fi rm (FCFF)
Discount rate (WACC) (%) 10.5
Annua l di s count fa ctor 0.91 0.91 0.91 n /a n /a
Cu mu lative factor for p e riod 0.91 0.82 0.74 9.15 14.38
Di s cou n t fa ctor to s ta rt of fi rs t fore ca s t p e ri od 0.82 0.45
Tota l d i s cou n t factor 0.91 0.82 0.74 7.50 6.49
GENERIC INPUTS
Number of years of explicit estimates 3.0
Middle period duration (yrs) 5.0
No. of years to start of terminal period 8.0
First forecast period 2016
Discounted value (4.0) (2.1) 1.0 11.0 104.9
Derived EV 110.8
MIDDLE PERIOD ASSUMPTIONS TERMINAL PERIOD ASSUMPTIONS Growth rate (%) Operating margin
(%) Capex/depreciation ratio (x)
Working capital/ turnover ratio (%)
Tax rate (%)
+50.0
10.0
1.0
5.0
15.0
Growth rate (%) Operating margin
(%) Capex/depreciation ratio (x)
Working capital/ turnover ratio (x)
Tax rate (%)
+3.5
20.0
1.0
5.0
20.0
Source: Liberum estimates
(2) Revenue multiples
In general, global cloud software businesses and the similar music businesses
highlighted above are valued on revenue multiples. This reflects that revenue
is the simplest headline measure of their commercial momentum (typically
backed with very high gross margins) and the fact that most of these
businesses are in the high investment stage (i.e. typically unprofitable). Below
we show a typical EV/revenue multiple range of 5-10x. This highlights that if
Management can deliver our revenue forecasts the equity value can rise to
back towards 10 pence a share during the next 12-18 months.
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Audioboom - Initiation
3 February 2016
Ente
rprise V
alu
e £
m
Pence
per
sh
are
Figure 38: Revenue multiple: Enterprise value Figure 39: Revenue multiple: pence per share 200
150
100
50
0
FY16e FY17e FY18e
5x revenues 10x revenues
30.0
25.0
20.0
15.0
10.0
5.0
0.0
FY16e FY17e FY18e
5x revenues 10x revenues
Source: Liberum estimates Source: Liberum estimates
(3) Outstanding partner warrants – Cumulus deal
In July 2015 Audioboom announced the strategic partnership with Cumulus.
As part of that deal the Company issued 20,000,000 warrants to Cumulus as
within an advertising revenue share agreement. These warrants have an
exercise price of 12.5p. The exercise price may be reset if Audioboom were to
issue ordinary shares at a price lower than 12.5p per share at any time while
any warrants remain outstanding, subject to a minimum reset price of 10p.
Half of the warrants are unconditional with the balance conditional on
Audioboom having received certain pre-determined levels of net revenue from
the advertising revenue share agreement with Cumulus. In our view the
warrants essentially reflect a proxy value placed on the company last July by
a key industry partner. Given the challenge of valuing Audioboom anyway at
this stage of its development we therefore include the 12.5p warrant price in
our valuation analysis.
Price Target 9p
Our Price Target is based on weighting the three valuation approaches above.
In our view EV/Sales (60% weighting in reaching our PT) will be the main
driver of valuation in the short-term. Other factors include the shape of any
potential future funding.
Figure 40: Price Target
Implied valuation
Year Metric Implied EV Implied mkt cap Price Target Weighting
EV/Sales (x) FY17 5.0x 26 26 60%
Cumulus warrants @12.5p 68 30%
DCF (WACC 11%) 111 111 10%
Weighted Average Market Cap 47
FD number of shares 544
Target price (pence) 9p
Source: Liberum estimates
25
Audioboom - Initiation
3 February 2016
Jan
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Audioboom - Liberum charts
Figure 41: Share price performance vs. AIM (rebased) Figure 42: Consensus recommendations
0.2
0.2
0.1
0.1
0.0
100%
80%
60%
40%
20%
0%
AUDIOBOOM GROUP PL FTSE AIM All Share
% BUY % HOLD % SELL
Source: Liberum, FactSet Source: Liberum, FactSet
Figure 43: Share price (£) vs. 12m forward EPS (£) Figure 44: EV/Sales & EBIT margin
0.2
0.2
0.1
0.1
0.0
0.0 37
0.0 32
0.0 27
0.0 22
0.0 17 12
0.0 7 0.0 2
0.0 -50.0 -100.0 -150.0 -200.0
Share price (£) (LHS) 12m forward EPS (£) (RHS) 12m fwd EV/Sales (x) (LHS) 12m fwd EBIT margin (%) (RHS)
Source: Liberum, FactSet Source: Liberum, FactSet
Figure 45: Consensus EPS forecasts (£) Figure 46: Share price (£), IBES target price (£) & rating
0.0
0.0
0.0
0.0
0.0
0.0
2.0
1.8
1.6
1.4
1.2
1.0
0.3
0.2
0.2
0.1
0.1
0.0
2013 2014 2015 2016 2017 2018
Rating (LHS) Share price (£) (RHS)
IBES target price (£) (RHS)
Source: Liberum, FactSet Source: Liberum, FactSet
Figure 47: 12m fwd net debt to EBITDA Figure 48: 12m fwd net debt to EBITDA
8.0
6.0
4.0
2.0
0.0
-2.0
8.0
6.0
4.0
2.0
0.0
-2.0
Net debt/EBITDA (x) Average Net debt/EBITDA (x) Average
Source: Liberum, FactSet Source: Liberum, FactSet
26
Audioboom - Initiation
3 February 2016
Appendix
Board
Malcolm Wall: Chairman
Malcolm Wall has worked across the media spectrum in the UK and overseas. He has been CEO, Content at Virgin
Media, CEO of Abu Dhabi Media, COO of UBM plc and held a number of senior roles within ITV companies. He is
currently working with Pinewood Studios to develop their Chinese interests. He is an advisor to the Abu Dhabi Media
Zone Authority, a Non-Executive Director of the international film fund, Image Nation, Chairman of Dock 10(the Media
City production facility) and Non-Executive Director of Eagle Eye Solutions Group plc, a leading digital consumer
engagement provider.
Robert Proctor: Chief Executive
Prior to joining Audioboom in September 2012, he was COO of US Social Media platform Reality Digital, Inc. for four
years, with clients such as Sony Pictures, YouTube, MTV and ITV. He was also Senior Vice-President International for
Adify Corporation, a US provider of online advertising to networks and advertising agencies. From 1996 to 2001, he
was founder and CEO at Simply Internet Limited which he grew to be one of the world’s largest public internet access
companies employing over 700 people.
Nick Candy: Non-Executive Director
Nick Candy was appointed as a non-executive Director to the board of Audioboom in April 2015. He is co-founder and
Chief Executive Officer of Candy & Candy Limited, one of the world’s foremost luxury real estate designers, whose
projects include One Hyde Park in London.
Jason Mackay: Non-Executive Director
Jason Mackay has extensive experience in the financial markets having worked for 11 years at UBS and Morgan
Stanley most recently as a Managing Director in Morgan Stanley’s equity business. Jason was also co-head of hedge
fund GLG’s UK equity business for 7 years, responsible for managing $3bn of assets. Over the last 4 years Jason has
founded several property businesses and invested in and helped numerous small companies. Jason will have a
particular focus on the marketing of Audioboom.
Roger Maddock: Non-Executive Director
Mr Maddock has worked in the finance industry in Jersey since 1981, specialising in fund administration. He was a
partner in a local chartered accountancy practice and a director of Worthy Trust Company Limited until it was sold to
Allied Irish Banks (CI) Limited in 1999, he was a director of that bank’s trust and fund administration companies until
2001. He was the Managing Director of Equitilink International Management Limited and a director of several of the
underlying funds of that group. Since 2005 he has held a number of directorships of fund management and
investment companies.
Michael Cooper: Non-Executive Director
Michael is the Worldwide CEO of phd, a global media planning and buying agency with headquarters in London,
specialising in strategic communications planning and industry thought-leadership. Prior to phd, Michael worked at
CNBC and at Saatchi & Saatchi in both London and Asia Pacific
Management
David McDonagh: Chief Financial Officer
David joined as Chief Financial Officer on 18 May 2015.He is a Chartered accountant (FCA) and joined the Company
from WideOrbit, a leader in premium broadcast technology and the largest sell-side processor of premium advertising
in the world, covering a broad assortment of media.
27
Audioboom - Initiation
3 February 2016
Financial model
Figure 49: Profit and Loss
INCOME STATEMENT £'000 Nov '13 Nov '14 Nov '15 Nov '16 Nov '17
Act Act Est Est Est
Sales 45 51 190 1,026 5,276
Cost of Goods Sold (COGS) (16) (7) (500) (513) (2,638)
Gross Income 29 44 (310) 513 2,638
Margin 64% 86% -163% 50% 50%
Other expenses (742) (1,018) (1,629) (1,500) (1,500)
Staff Expenses (820) (1,131) (3,167) (3,200) (3,400)
EBITDA (1,533) (2,105) (5,106) (4,187) (2,262)
Margin - - -2687.2% -408.3% -42.9%
Depreciation (9) (8) (20) (40) (80)
EBITA (pre acquired amortisation and exceptionals) (1,542) (2,113) (5,126) (4,227) (2,342)
Amortisation of acquired intangibles (9) (4) (5) (10) (40)
EBIT (pre-exceptionals) (1,551) (2,117) (5,131) (4,237) (2,382)
Exceptional Expenses - (1,363) 0 0 0
Share based Expenses - (413) (400) (500) (600)
Reported EBIT (1,551) (3,893) (5,131) (4,237) (2,382)
Interest Income (10) 19 5 0 0
Pretax Income Adjusted (1,552) (2,094) (5,121) (4,227) (2,342)
Pretax Income Reported (1,561) (3,874) (5,125.6) (4,237.2) (2,382.1)
Income Taxes 70 48 0 0 0
Rate - - 0.0% 0.0% 0.0%
Net Income Reported (1,491) (3,826) (5,126) (4,237) (2,382)
Net Income Adjusted (1,482) (2,046) (5,121) (4,227) (2,342)
Consolidated Net Income (1,491) (3,826) (5,126) (4,237) (2,382)
Other 1 0 0 0
Attributable profit (1,491) (3,825) (5,126) (4,237) (2,382)
Source: Liberum estimates / Company
Figure 50: Balance Sheet
BALANCE SHEET £'000 Nov '13 Nov '14 Nov '15 Nov '16 Nov '17
Act Act Est Est Est
Non-current assets 16 37 70.0 84.0 58.0
Net Property, Plant & Equipment 9 36 66 76 46
Intangibles 7 1 4 8 12
Other 0 0 0 0 0
Current Assets 168 9,210 3,637 (992) (3,616)
Cash & Short-Term Investments 22 8,867 3,137 (1,742) (4,741)
Inventories 0 0 0 0 0
Trade and other Receivables 146 343 500 750 1,125
Current Liabilities (126) (379) (250) (350) (500)
Trade and Other payables (39) (121) (200) (300) (450)
Borrowings 0 0 0 0 0
Income Tax Payable (30) (71) 0 0 0
Other (57) (187) (50) (50) (50)
Non-current liabilities (0) (0) (0) (0) (0)
Trade/other payables (0) (0) (0) (0) (0)
LT Debt (0) (0) (0) (0) (0)
Other 0 0 0 0 0
Net assets 58 8,868 3,456 (1,258) (4,058)
Book Value per Share 0.0 2.7 6.5 (2.3) (7.3)
Source: Liberum estimates / Company
28
Audioboom - Initiation
3 February 2016
Figure 51: Cash flow
CASH FLOW £'000 Nov '13 Nov '14 Nov '15 Nov '16 Nov '17
Act Act Est Est Est
Operating Activities Net Income (1,491) (3,826) (5,121) (4,227) (2,342)
Depreciation and Amortisation 18 12 25 50 120
Net Finance Income 10 (19) (5) Taxation (70) (48) Share options 0 428 0 0 0
Exceptionals/Other 0 1,291 Changes in Working Capital (27) (271) (78) (150) (225)
Cash from operations (1,559) (2,433) (5,179) (4,327) (2,447)
Cash from operations/EBITDA 102% 116% 1 1 1
Income taxes 70 48 Interest/Other (3) 3 (2) (2) (2)
Net Operating Cash Flow (1,492) (2,382) (5,180) (4,329) (2,449)
Investing Activities
Capital Expenditures (Fixed Assets) (4) (35) (50) (50) (50)
Capital Expenditures (Other Assets/Intangibles) 0 0 (500) (500) (500)
Acquisitions 0 (4) Other 0 3,229 Net Investing Cash Flow (4) 3,190 (550) (550) (550)
Financing Activities
Cash Dividends Paid 0 0 0 0 0
Share issues 1,266 7,898 0 0 0
Net Financing Cash Flow 1,266 7,898
FX/Other
139
Net Change in Cash 8,845 (5,730) (4,879) (2,999)
Net Cash (debt) start of period
22
8,867
3,137
(1,742) Net Cash (debt) end of period 22 8,867 3,137 (1,742) (4,741)
Free Cash Flow
(1,496)
(2,417)
(5,730)
(4,879)
(2,999) Free Cash Flow per Share (0.9) (0.7) (1,075) (899) (542)
Source: Liberum estimates / Company
Figure 52: Listens forecasts
Listens forecast Q1'16 Q2'16 Q3'16 Q4'16 FY'16 Q1'17 Q2'17 Q3'17 Q4'17 FY'17
Total number of listens/quarter
(m)
110
132
158
190
590
219
251
289
332
1,092 - growth sequentially - 20% 20% 20% - 15% 15% 15% 15% -
- growth Y/Y - - - - - 99% 90% 83% 75% 85%
Listens / geography (%)
UK 20% 15%
USA 55% 60%
Australia 10% 8%
Asia 10% 13%
ROW 5% 4%
100% 100%
Listens / platform (%) Audioboom app 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%
Desktop/Mobile browser 20% 20% 19% 19% 19% 18% 18% 17% 17% 17%
RSS Feeds 70% 71% 72% 73% 72% 74% 75% 76% 77% 76%
Other 6% 5% 5% 4% 5% 4% 3% 3% 2% 3%
Listens / platform (m)
Audioboom app 4 5 6 8 24 9 10 12 13 44
Desktop/Mobile browser 22 26 30 36 115 39 45 49 57 190
RSS Feeds 77 94 114 139 424 162 189 220 256 826
Other 7 7 8 8 29 9 8 9 7 32
Source: Liberum estimates
29
Audioboom - Initiation
3 February 2016
Figure 53: Advertising / revenue assumptions
Advertising impressions forecasts
Q1'16 Q2'16 Q3'16 Q4'16 FY'16 Q2'17 Q3'17 Q4'17 FY'17
Est Est Est Est Est Est Est Est Est
Pre/mid/post roll audio number of ads (m) Audioboom app 0 0 0 0 0 0 0 - % listens 0% 0% 0% 0% 0% 0% 0%
Desktop/Mobile browser 5 7 9 12 16 19 23 - % listens 24% 26% 29% 32% 36% 38% 40%
RSS Feeds 17 22 31 42 68 86 108 - % listens 22% 24% 27% 30% 36% 39% 42%
Other 0 0 0 0 1 1 1 - % listens 5% 5% 5% 5% 10% 10% 10%
23 30 40 54 146 85 105 131 389
Pre roll video number of ads (m) Audioboom app 0 0 0 0 0 0 0 - % listens 0% 0% 0% 0% 0% 0% 0%
Desktop/Mobile browser 1 1 2 2 5 6 8 - % listens 3% 4% 5% 6% 10% 12% 14%
RSS Feeds 2 4 6 8 23 33 46 - % listens 3% 4% 5% 6% 12% 15% 18%
Other 0 0 0 0 0 0 0 - % listens 0% 0% 0% 0% 0% 0% 0%
3 5 7 10 25 27 39 54 138
In-read audio number of ads (m) Audioboom app 0 0 0 0 0 0 0 - % listens 0% 0% 0% 0% 0% 0% 0%
Desktop/Mobile browser 0 0 0 1 3 4 6 - % listens 0% 0% 0% 2% 6% 8% 10%
RSS Feeds 0 0 0 1 9 15 23 - % listens 0% 0% 0% 1% 5% 7% 9%
Other 0 0 0 0 0 0 0 - % listens 0% 0% 0% 0% 0% 0% 0%
0 0 0 2 2 12 19 29 67
Revenue forecasts
Q1'16 Q2'16 Q3'16 Q4'16 FY'16 Q2'17 Q3'17 Q4'17 FY'17
Monetized listens (m) Audioboom app 0 0 0 0 0 0 0 - % listens 0% 0% 0% 0% 0% 0% 0%
Desktop/Mobile browser 6 8 10 14 24 29 36 - % listens 27% 30% 34% 40% 52% 58% 64%
RSS Feeds 19 26 36 51 100 134 177 - % listens 25% 28% 32% 37% 53% 61% 69%
Other 0 0 0 0 1 1 1 - % listens 5% 5% 5% 5% 10% 10% 10%
Total monetized listens 26 34 47 66 173 124 163 213 593
% of total listens 23% 26% 30% 35% 49% 57% 64%
Advertising CPM (£)
Q1'16
Q2'16
Q3'16
Q4'16
FY'16
Q2'17
Q3'17
Q4'17
FY'17 Pre/mid/post roll audio 5 5 5 5 6 7 7
Pre roll video 10 10 10 10 10 10 10 In-read audio 20 20 20 20 20 20 20
Gross Advertsing income £000
Pre/mid/post roll audio 113 148 200 268 509 737 916 Pre roll video 30 48 72 105 271 389 540 In-read audio 0 0 0 42 243 386 574 BOOM reported revenue 142 196 272 415 1,026 1,024 1,511 2,029 5,276
Cost of Sales (pay-away to content providers)
50%
50%
50%
50%
50%
50%
50%
50%
50%
Gross Profit
71
98
136
207
513
512
756
1,015
2,638
Source: Liberum estimates
30
Audioboom - Initiation
3 February 2016
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giving within each category the proportion to
which LCL provided corporate finance services in
the last 12 months,
• previously published non-independent research on
the companies mentioned herein,
• whether LCL acts as corporate finance adviser or
provides investment banking services to the
companies mentioned herein and receives
remuneration thereto.
• whether LCL has in the last 12 months led or
comanaged an offer of securities for the
companies mentioned herein.
• whether LCL and / or its affiliates held more than
1% of the issued share of the companies
mentioned herein.
• whether LCL makes markets in the shares of the
companies mentioned herein.
• whether the author of this communication is a
director or officer of any company mentioned
herein,
• whether the author or an individual who assisted in the preparation of this report received or
purchased shares in the companies mentioned
herein prior to a public offering.
31
James Bouverat (Specialist Sales) Convertibles
+44 (0)20 3100 2253
[email protected] Simon Smith
+44 (0)20 3100 2171
Richard Tomblin
+44 (0)20 3100 2172
Anastasia Mikhailova (Specialist Sales) [email protected] [email protected]
+44 (0) 20 3100 2259
Research Aerospace & Capital Goods
Ben Bourne +44 (0)20 3100 2275
Jack O’Brien
+44 (0)20 3100 2273
Agriculture & Chemicals
Adam Collins
+44 (0)20 3100 2075
Sophie Jourdier
+44 (0)20 3100 2072 [email protected]
Lisa De Neve
+44 (0)20 3100 2068
Building Materials & Housebuilders
Charlie Campbell
+44 (0)20 3100 2090
Consumer Goods
Robert Waldschmidt
+44 (0)20 3100 2274
Anubhav Malhotra +44 (0) 20 3100 2197
Pharmaceuticals
Naresh Chouhan +44 (0)20 3100 2095
Roger Franklin
+44 (0)20 3100 2096
Dominic Rose
+44 (0)20 3100 2098 [email protected]
Real Estate
David Brockton
+44 (0)20 3100 2243
Kieran Lee
+44 (0)20 3100 2276 [email protected]
Gareth Phillips +44 (0)20 3100 2081
John Mozley (Specialist Sales)
+44 (0)20 3100 2115
Retail
Tom Gadsby
+44 (0)20 3100 2258
Equity Sales – London Richard Mawer (Head of Sales)
+44 (0)20 3100 2114 [email protected]
Edward Blair
+44 (0)20 3100 2117 [email protected]
Bede Bruce-Lockhart
+44 (0)20 3100 2112 [email protected]
Sean Dixon
+44 (0)20 3100 2124 [email protected]
Tim Mayo
+44 (0) 20 3100 2127 [email protected]
David Parsons (Head of Equities)
+44 (0)20 3100 2125 [email protected]
Tajender Sandhu
+44 (0)20 3100 2238 [email protected]
Tom Saunders
+44 (0)20 3100 2249 [email protected]
UK Small & Mid Cap
Jeremy McKeown
+44 (0)20 3100 2248
Julian Collett
+44 (0)20 3100 2113
Archie Soames
+44 (0)20 3100 2193
Natalia Lipecka
+44 (0)20 3100 2097
Private Wealth Services
Katherine Burgdorf
+44 (0)20 3100 2235 [email protected]
Sebastian Fernandez
+44 (0)20 3100 2242 [email protected]
[email protected] Adam Tomlinson Equity Sales – New York
Wayne Brown
+44 (0) 20 3100 2082
Diversified Financials
Justin Bates
+44 (0)20 3100 2274
Daryl Smith +44 (0)20 3100 2092
+44 (0)20 3100 2174
SMID Technology & Gaming
Andrew Bryant
+44 (0)20 3100 2277
Jason Holden
+44 (0)20 3100 2278
Mark Godridge +1 212 596 4823
Julian Plant
+1 212 596 4824
Sarah Port +1 212 596 4818
Daniel Kraus
+1 212 596 4812
John Churchill +1 212 596 4807
dary [email protected]
European Capital Goods
Daniel Cunliffe
+44 (0)20 3100 2086
Strategy & Stock Selection
Sebastian Jory
+44 (0)20 3100 2192
Sales [email protected] Nina Dixon Stephen Jury
Ryan Gregory
+44 (0)20 3100 2071
FinTech
Cormac Leech
+44 (0)20 3100 2264
Support Services & Special Situations
Joe Brent +44 (0)20 3100 2272
Rahim Karim
+44 (0)20 3100 2271
+44 (0)20 3100 2109
Nick Worthington
+44 (0)20 3100 2106
David Thompson
+44 (0)20 3100 2107
Peter Leather
+44 (0)20 3100 2119
Sean McGovern
Transport & Leisure +44 (0)20 3100 2062 +44 (0)20 3100 2110Media
Ian Whittaker +44 (0)20 3100 2089
Annick Maas
+44 (0)20 3100 2093
Ciarán Donnelly
+44 (0)20 3100 2079
Mining
Richard Knights
+44 (0)20 3100 2087 [email protected]
Ben Davis
+44 (0)20 3100 2083
Alexandre Schmidt +44 (0)20 3100 2268
Oil & Gas
Andrew Whittock
+44 (0)20 3100 2073
Gerald Khoo
+44 (0)20 3100 2195
Technology
Janardan Menon
+44 (0)20 3100 2076 [email protected]
Eoin Lambe +44 (0)20 3100 2191
Alternatives & Funds
Conor Finn
+44 (0)20 3100 2257 [email protected]
Myrto Charamis +44 (0)20 3100 2266
Andrew Davies (Specialist Sales)
+44 (0) 20 3100 2269 [email protected]
Harry Preece
+44 (0)20 3100 2118
Trading Dominic Lowres
+44 (0)20 3100 2103
Peter Turner
+44 (0)20 3100 2170
Market Making STX 77440
+44 (0)20 3100 2200
Scott Leslie
+1 212 596 4813
Tom Camburn
+44 (0)20 3100 2065
Simon Warrener
+44 (0)20 3100 2108
Liberum Capital Limited / Ropemaker Place, Level 12, 25 Ropemaker Street, London, EC2Y 9LY / T +44 (0)20 3100 2000 / F +44 (0)20 3100 2299 / www.liberum.com
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