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.