Audioboom - Initiation Monetising over half a billion listensAudioboom - Initiation 3 February 2016 Audioboom Lis an audio player software platform that e a drin mb dd d sh ot-f rm

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

[email protected]

Jason Holden

+44 (0) 20 3100 2278

[email protected]

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.

mailto:[email protected]



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


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

mailto:@12.5p


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


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


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%


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%


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


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


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).

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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

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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

https://audioboom.com/


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


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


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


13


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%

Print

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.

14


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


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

15


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).

16


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.

17


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


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.

19


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


20


3 February 2016

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%


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


21


3 February 2016

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


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


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


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

22


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)


23


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


(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.

24


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


(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


25

mailto:@12.5p


3 February 2016

Jan

-13

Mar-

13

Ma

y-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

Ma

y-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Jan

-15

Mar-

15

Ma

y-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Jan

-16

Jan

-13

Mar-

13

Ma

y-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

Ma

y-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Jan

-15

Mar-

15

Ma

y-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Jan

-16

Jun

-14

Ju

l-1

4

Aug

-14

Sep

-14

Oct-

14

No

v-1

4

Dec-1

4

Jan

-15

Feb

-15

Mar-

15

Ap

r-1

5

Ma

y-1

5

Jun

-15

Ju

l-1

5

Aug

-15

Sep

-15

Oct-

15

No

v-1

5

Dec-1

5

Jan

-16

Jan

-13

Ma

r-1

3

Ma

y-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Jan

-14

Ma

r-1

4

Ma

y-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Jan

-15

Ma

r-1

5

Ma

y-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Jan

-16

Jan

-13

Mar-

13

Ma

y-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

Ma

y-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Jan

-15

Mar-

15

Ma

y-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Jan

-16

Jan

-13

Ma

r-1

3

Ma

y-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Jan

-14

Ma

r-1

4

Ma

y-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Jan

-15

Ma

r-1

5

Ma

y-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Jan

-16

Jan

-13

Ma

r-1

3

Ma

y-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Jan

-14

Ma

r-1

4

Ma

y-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Jan

-15

Ma

r-1

5

Ma

y-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Jan

-16

Jan

-13

Mar-

13

Ma

y-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

Ma

y-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Jan

-15

Mar-

15

Ma

y-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Jan

-16

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)


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)


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


26


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


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)


28


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)


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


29


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%



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%



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%



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


30


3 February 2016

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