Arden Partners, in its latest analysis and forecast of London-based firm Audioboom Group PLC (LSE: BOOM.L), made a "buy" recommendation for the stock.
In making the recommendation, Arden cited the company being the only social media play that is listed in UK, and despite its limited funding, expanded to over 2.4 million registered users over the years. It stated that Audioboom is set for rapid growth and has a clear monetisation strategy.
There are four main reasons behind the "buy" recommendation and a 14p price target. These are:
- Concentration on spoken word - While most of social media companies focus on music, Audioboom concentrates on the spoken word, which is an open market vs music, which is a crowded market. It permits Audioboom to have a lower cost when acquiring content, and this results in a 68 per cent gross margin projected for financial year 2016. In comparison, Arden estimates Spotify's gross margin for the same period at only 23 per cent, coming mostly from payments to music copyright holders.
- Paid upgrades and revenue share - These two were identified as the company's clear plans to benefit financially from its user base, in contrast to other early social media plays such as Twitter, which does not have a very clear plan of monetising its user base. Arden also pointed to Audioboom's management expertise to achieve its goals and the launch of a new user interface recently signed with high-value content partners as offering a promise to revolutionise the way audio is consumed.
- Attractive consolidation target - Arden said that what is strong about Audioboom's mobile offering is its new app slated to be rolled out in September 2014, making the company a likely consolidation target as the firm puts in place its business plan.
- 14p share target price - Arden explained that it reached that value by taking a 75 per cent discount to the peer group average user value of $100 and using Audioboom's FY 2016 forecast registered user number forecasts and discounting it back at 25 per cent a year. It added that by applying current average user values to the current registered users of 2.4 million yielded a price target of 30p per share.
Audioboom's shares have increased to 5.9p or 293 per cent since its reverse into cash shell One Delta and associated £3.5 million fundraising at 1.5p per share in May.
Because of its Software as a Service platform that allows straightforward upload or download of content, Audioboom has positioned itself as the global leader in spoken audio content.
It has so far 800 providers, including major media companies such as BBC, Guardian, tallSport and Sky Sports.