London, England, United Kingdom (4E) – There are many British social medias like Gapyear.com and Faces.com only they are not publicly-listed leaving local investors unable to participate in the sector. So it’s not surprising that the debut of Audioboo in the London Stock Exchange is getting notice from British investors looking for homegrown alternatives to social media stocks in Wall Street.
Audioboo touts itself as the audio version of YouTube with 2.5 million subscribers using the platform in creating, publishing and sharing non-music content, including radio broadcasts, news, interviews, speeches and audiobooks. London-based Audioboom Group PLC (BOOM.L) owns and operates the social media that is seeking to replicate the success of Pandora (NYSE: P) a music streaming service serving the U.S., Australia and New Zealand.
U.K. stock broker Arden Partners is recommending a Buy for Audioboom as it projected the five-year-old company’s revenue increasing from nil in the current year to nearly $11 million in 2016 with operating cost of only $3.6 million in the period. The firm attributes its projections to Audioboom’s attractiveness and profitable business model.
Audioboo uses Software as a Service (SaaS) platform that allows users to upload, download and listen to content for free and allows content providers to offer their audio to a broader audience and at the same time archive content. Arden Partners reported that at least three new providers are signing up per month while average visiting time is higher than other social media platforms at 18 minutes per visit.
Audioboom chief executive officer Rob Proctor said the platform now has 2,000 channels and 2.5 million subscribers, as well as a total of 13 million active users through the website, mobile applications and other touchpoints, according to Stocklama.com. Audioboom also has a content-sharing partnership with British media giants BBC and Sky Sports.
The revenue potential of Audioboom also lies in paid subscriptions for heavy users, commission from sale of premium content and advertising. Users wanting to upload longer and greater quantities of audio clips may do so through an upgraded Freemium account. Users can buy a Plus account for $12 a month or $103 per year, or buy a channel for $1,030 a year. An Audioboo channel, which the likes of BBC uses, allows branding to be displayed, among others. Arden partners projects Freemium revenues to reach $1.5 million in 2015 and increase threefold to $4.8 million by 2016.
Meanwhile, advertising is seen raking in $1.88 million in 2015 and $3.4 million in 2016.
Audioboo’s advertising is in the form of banner ads on the website and mobile apps and pre- and post-roll audio advertising.
Premium content, paid plays of special broadcasts and audiobooks, is expected to earn the company $1.37 million next year and double that in 2016.
Due to the highly scalable nature of social media companies, Audioboom has the ability to generate significantly higher revenues without a corresponding increase in the cost base. “The remainder of Audioboom’s costs are mostly staff-related, which we expect to double to $4.8 million in 2016 compared to 2014,” Arden Partners said.
The firm said Audioboom is following the correct strategy of increasing its user base as rapidly as possible through substantial investment in content and technology.
The social media stock that resemble closest to Audioboo is Pandora, which provides a personalized radio service, negating the need for listeners to switch between channels to locate the music they are interested in.
Pandora has experienced strong growth, from 100 million users at its initial public offering in 2011 to more than 250 million users in March 2014. Listener hours have grown slightly ahead of this rate to more than 4.8 billion per quarter, and it claims to have a 9.1 percent share of radio listening in the U.S. Pandora is available through a range of web and mobile devices as well as in consumer electronics and in-vehicle audio.
In radio advertising, Pandora leads in 14 of the top 15 local radio markets in the U.S. In the first quarter of 2014, it generated $309 million of revenue, $141 million from advertising (up 45 percent year-on-year) and $39 million from subscriptions (up 94 percent). Active users were 75 million in the period, more than double the prior year. Despite this strong growth, the company’s financial performance remains constrained by the cost of content acquisition such as royalty and copyright payments, Arden Partners said. After sales and marketing, Pandora’s gross margin in 2013 was just 12 percent, with an operating margin of 2 percent.
“The issue of royalty/licensing payments for copyright music is complicated and is currently subject to both court cases and an investigation by the U.S. Department of Justice into collective licensing. The uncertainty created by this adds to the question marks over the business model for music-based social media plays and, in our view, enhances the investment case for Audioboom relative to the peers listed in this section that incur copyright payment costs,” said Arden Partners.