2500 times revenues, an accident waiting to happen?

Who on earth wouldn't short the shares of a company that has just reported revenues of £24,000 and is valued at over £60m? A ridiculous valuation surely, and such an easy target. In fact, those figures can't be right can they? The company is valued at 2500 times revenues. Bonkers. Welcome to the world of social media. The figures are correct, and the company is the only LSE listed social media company, Audioboom.

I have written about Audioboo(m) several times in the past and I own a 20% stake through my holding in 7digital. You can follow my history of blogs about this company through the links below:-

http://michae1mouse.blogspot.co.uk/2014_03_01_archive.html

http://michae1mouse.blogspot.co.uk/2014/05/boom-one-delta-rises-more-than-100-on.html

http://michae1mouse.blogspot.co.uk/2014/05/7digital-reverses-into-ubc.html

http://michae1mouse.blogspot.co.uk/2014/06/billion-dollar-boom.html

It makes sense to open a spread bet on Monday on the SP collapsing, and sit back patiently and watch. After all look what happened to Monitise this week.  In my opinion, Monitise was grossly overvalued, and I did comment on Monitise back in December last year:-

http://michae1mouse.blogspot.co.uk/2013/12/monitise-home-retail-group-and.html

However, I'm not going to short Audioboom shares despite their silly valuation or sell my shares in 7digital. Why? Firstly, if Audioboom retains it's current valuation (or rises even further) this implies that 7digital's own business is viewed by the market as having next to zero value. 7digital should achieve revenues of £14m this year, and whilst it is likely to be loss making in the short term, it is potentially a very exciting growth story on it's own merits.

Secondly, since listing Audioboom has announced content partnerships with CBS, Sky Sports and Essel Group (Essel is one of India's leading conglomerates, with a portfolio of entertainment and news channels) and a deal with talkSPORT to take on Audioboom's UK sports network sales.

This is terrific progress alongside it's 100% hike in registered users in 12 months from 1.4m to 2.8m at 25 August 2014. However, what would really put me off going short on the shares are the two following snippets from recent RNS releases. In July Rob Proctor CEO of Audioboom said this,

"The Company has recently been approached by certain investors who have expressed interest in investing capital into the business. The Board considered these approaches, as the Company is growing very rapidly and additional personnel are required in new offices and in content management to direct this expansion. The Board has, however, decided that the number of initiatives in progress mean that this is not an appropriate time to raise further capital."

Followed by this paragraph in the interim results:-

"Alongside our own development, the world of social media continues to flourish; strategic acquisitions by global players, both Western and Asian, continue with regularity and at high valuations. Audioboom is operating in a global market, if we continue to develop our platform and technology, the future will look very interesting for shareholders. I intend to make the most of these opportunities."

It would appear to me that the company is looking to build quickly and sell quickly. In the present climate it's not too difficult to see Audioboom being sold for well in excess of it's current valuation, and possibly in the not too distant future.

I certainly won't be shorting the shares. Something I never do anyway.

However, just one final thing to add. Audioboom and 7digital are highly speculative, and there is no margin of safety with either company. In other words, the shares are not for widows or orphans, and whilst fortunes could be made, they could equally be lost.

For the record, I currently hold 7digital shares with their 20% holding in Audioboom.

Everything needs crossing, it's that type of punt.

Trakm8 - Driving growth into new territories

Last week Trakm8 released a trading statement ahead of their AGM. In the first four months of the year, strong organic growth has continued with the value of new orders booked up 33% against the same period last year on a like for like basis.

This year will also see a full contribution from Box, which they acquired towards the end of last year, and as a consequence, revenues will be considerably higher with the corresponding benefit to profitability.

Interestingly, the current year has seen 17,000 more units reporting to their servers making 75,000 in total. If they continue at that rate then over the full year the number of units reporting to their servers will have almost doubled. This is extremely encouraging since the revenues generated are recurring, and form the basis of Trakm8's financial stability as it moves through the gears on it's growth trajectory.

In recent weeks they have also announced new contract wins with Kubota (an existing client) and Downton (a new customer). On Friday they announced a further contract win with SAGAsystem AS based in Norway moving them into Scandinavia which represents a new territory for Trakm8. It's reassuring to see Trakm8 are not only able to win new clients and move into new territories, but importantly existing clients keep returning to expand and update with Trakm8 solutions and products.

Whilst Trakm8 has already been a multibagger for me, I see no reason to sell my holding and remain hopeful that they can continue to capitalise on their position in the rapidly growing Telematics market place. I am cautiously optimistic that with the market opportunity that lies before them, over time they can develop into a company that commands a market capitalisation well above the current valuation of £22m.

The company remains on track to meet market expectations for the full year of 5.7p EPS which puts the forward p/e at just over 13, the predicted EPS for 2016 at 8.0p gives a forward p/e of just 9.5.
Given the rate of growth, this suggests the shares are very good value, and any announcement of further major contracts similar to their recent win with Direct Line would make the shares look extremely cheap.