STORY-B.ST - Storytel

[NewbieD]

Subscription audiobook service started in 2005. Aims to be Netflix for Audiobooks for non-english markets. 350 MUSD market cap.

 

Investment thesis:

- winner-takes-all dynamics playing out in home markets of Sweden and Norway

- created an audiobook market per capita in Scandinavia that is twice that of second highest one (US)

- promising trends in next line markets of Denmark, Netherlands

- Finland and Poland are next markets

- Amazon Audible, which is a major competitor, has shown no signs to tackle small non-english markets

- the founder is CEO, seemingly a clever visionary. He and his wife are big shareholders.

- capital allocation seems to be somewhere between good and great (issued stock after price run-up and made a couple of great deals. One smaller competitor (Mofibo) and one old book publisher with a large content catalogue)

- lowering content cost through own productions and promoting them (a la Netflix). cheap production cost since mostly a writer, editor and voice narrator.

- reviews indicate high customer satisfaction (except for some obvious glitches in android version)

- book publishers are grumbling about decreasing revenue per book listened but are at the same time desperate to be on the platform - a sign of the company adding value to customers through more efficient distribution

 

Valuation

- PE est. 27 2017, 21 2018

- P/S 4.0

 

Thoughts?

[KJP]

Why are audiobooks a winner-take-all market?

[NewbieD]

It's a subscription service. Pay about 20 USD/month and you get access to their library. Since I want to know the service I use have all the books I want in my language, I will buy the most easy to use service with the content I want. Since that service then gets bigger revenues, it becomes more attractive to book publishers and authors. Which makes it more attractive to customers etc. At least that's how it's played out thus far.

 

Some competitors have tried to start up, but they have not reached more than 30 000 subscribers. Storytel has > 200 000 paying about 300 USD each per year.

 

Sure, there might be room for a couple a la Netflix and HBO. Although metrics like content production cost and listening / viewing time are quite different between book and film which maybe decreases the need for several services.

 

The thing that could compete is something like Audible where you pay per book. As a customer though a subscription model is much better IMO. You don't have to think about if another book is worth it once you have the subscription. And customer wins in the long run.

 

[KJP]

It's a subscription service. Pay about 20 USD/month and you get access to their library. Since I want to know the service I use have all the books I want in my language, I will buy the most easy to use service with the content I want. Since that service then gets bigger revenues, it becomes more attractive to book publishers and authors. Which makes it more attractive to customers etc. At least that's how it's played out thus far.

 

Some competitors have tried to start up, but they have not reached more than 30 000 subscribers. Storytel has > 200 000 paying about 300 USD each per year.

 

Sure, there might be room for a couple a la Netflix and HBO. Although metrics like content production cost and listening / viewing time are quite different between book and film which maybe decreases the need for several services.

 

The thing that could compete is something like Audible where you pay per book. As a customer though a subscription model is much better IMO. You don't have to think about if another book is worth it once you have the subscription. And customer wins in the long run.

 

Thanks for the description, which makes sense.  Essentially the Netflix playbook:  more content means more users means more revenue means more money to buy/build more content means more users and so on.  Thanks for posting the idea.

 

A few follow up questions: How concentrated is book publishing in the markets you mentioned?  Relatedly, why don't book publishers create their own service?  [i realize Hulu doesn't appear to be working out too well, and Storytel's move into publishing is designed, in part, to deal with that.]  Would that even be permitted under the relevant competition laws?

[KJP]

One more question:  Are there any English language financials?  I didn't see any on Storytel's website.

[WneverLOSE]

Hi, since most of us don't read swedish that well, is it possible you can extract some basic financial information and write it here such as last 5 years sales, earnings, amount of paying users and so on ?

[NewbieD]

No English financials:(

 

This google.translate link should give some basic info. Pressing the links will keep translating non-pdfs.

 

https://translate.google.com/translate?sl=auto&tl=en&js=y&prev=_t&hl=en&ie=UTF-8&u=http%3A%2F%2Faktietorget.se%2FQuotesInstrument.aspx%3FLanguage%3D1%26InstrumentID%3DSE0007439443&edit-text=&act=url

 

Here is last quarterly:

 

Highlights during the quarter including.  Mofibo (cf. Q2 2015)

 

❏        Increased subscriber base from 268,300 to 291,600 subscribers (181 100)

  ❏        Increased streaming revenue from 99.7 million to 111.3 million (67.5 million)

  ❏        Increased percentage of foreign sales from 29.9% to 32.4% (27.5%)

  ❏        Delivered an operating profit of SEK 4.8 million (-2.4 million)

  ❏        Acquired Denmark's leading bokstreamingtjänst Mofibo for $ 125 million

  ❏        Acquired in Sweden's second largest publishing group Norstedts 152 million

  ❏        Launched Storytel Original - own stories written for the audio format

 

President's Statement  ( Click to see the interview with the President )

 

The latest quarter (Q2 2016) may be the most exciting quarter so far this Storytels history.  We made ​​two major acquisitions at the same time we launched Storytel Original.

 

The main deal is rolled on the good, with a nice profitable growth, and we reached the milestone of 300,000 paying subscribers at the end of the period ( PM June 27 ).

 

Storytel recruits the most new subscribers during the summer.  Therefore, we normally significantly higher growth in Q3 than the other quarters in the year.  In this interim report, we have added a forecast of subscriber base and sales for the next quarter (Q3 2016).

 

In Q2 2016 grew Storytels subscriber base by 23,300 subscribers, of which Sweden accounted for a growth of 13,400 subscribers and Abroad 9900 subscribers.  On average Storytel 291,600 paying subscribers in Q2 2016, up from 181,100 paying subscribers in Q2 2015. All figures figures include also Mofibos subscriber base retroactively.

 

The acquisition of Danish bokstreamingtjänsten Mofibo ( PM May 20 ) is a clear logic to drive growth and profitability in the Danish market.  We have started well with the harmonization and synergies in terms of organization, technology and brand.

 

Through the acquisition of Sweden's second largest public issuance publishing group Norstedts ( PM June 22 ) will Storytel firmly rooted in the Swedish book market with all the fine writers collaborations it brings.  We will now be able to work long-term in Sweden and ensure that we stand firmly on the future of book market.

 

Storytel Original has been a great start since its launch in June ( PM June 14 ) and all productions have so far been better received than expected.  Especially Black Star has dominated the music charts during the summer and attracted large crowds listening.  Storytel Original looks to become an important publishing format for Storytel the future, particularly in our international markets, where the first productions are released in the fall.

 

We also managed to make an operating profit of 4.8 million in the quarter.  Particularly gratifying is that in less than a year since the acquisition in July 2015, have now turned Massolit Publishing Group to profit.

 

We carried out a share issue ( PM June 14 ) in cooperation with Avanza, where 21.6 million the company raised and more than 2000 new Storytel shareholders creation of shareholder list.

 

Revenues for streaming in Q2 2016 was 111 million, compared with SEK 67 million in Q2 2015. The Swedish operations account for 75 million of revenues in Q2 2016, and foreign operations account for 36 million of revenue, representing 32% of the total.  A year ago, in Q2 2015, revenues were MSEK 49 in Sweden and 19 million abroad.

 

financial information

Group and Parent Company applies the Annual Accounts Act and BFNAR 2012: 1 Annual report and consolidated (K3).

  Storytel AB (publ), former Massolit Media AB (publ) 's acquisition of Storytel AG reported in accordance with current accounting for reverse acquisitions.  In the consolidated accounts, the reverse acquisition to Storytel AG is the parent company and Massolit included in the accounts fr.om acquisition.  The legal parent is Storytel AB (publ).  Mofibo Books ApS and its subsidiaries are consolidated fr.om acquisition.

 

This report has not been audited by the auditors.

 

Revenue and profit for the period

Operating revenues amounted in the Group for Q2 2016 to 122,494 (56,024) thousand.  The largest part of the revenues generated in the business area, Streaming, which Sweden accounts for just under 70% and abroad for more than 30%.  Storytel AS in Norway is 50% owned together with Cappelen Damm and reported according to the proportional method.  In the table on p.2 included all subscribers and revenues in Norway and abroad are included in Streaming.

  Operating profit in the Group amounted in Q2 2016-4843 (-2368) thousand.

  Earnings per share after tax amounted in Q2 2016 to 0,10kr.

 

Parent company - Income and profit for the period

Operating income totaled MSEK for Q2 2016-351 (268) thousand.  Operating profit in the Parent Company for Q2 2016 to -604 (-1 055) thousand.

 

Group - Financial position and cash flow (June 30 2016)

The Group had at the end of the period 61,011 (41,495) thousand in available cash.  The equity ratio was 16.6 (4.8)%.  Shareholders' equity amounted to 57 773 (7 808) thousand.  During the period, two issues were completed, in connection with the acquisition of Mofibo and a diversification issue by Avanza, totaling 41.6 million.  In connection with the acquisition of Mofibo have external debts increased when the acquisition is largely financed by bank loans.  The acquisition analysis developed in connection with the acquisition indicates a goodwill item of SEK 134 million that will be amortized in 10 years.

 

Parent - Financial position (as at 30 June 2016)

The parent company had at the end of period 1 349 (112) thousand in available cash.  The equity in the parent company amounted to 96.5 (96.6)%.  Shareholders' equity amounted to 635 667 (595 771) thousand.

 

  Shares and Share Capital (as at 30 June 2016)

  The number of registered shares outstanding at the end of the period was 45,347,183 pcs.  These were distributed among 635 class A shares and 45,346,548 class B shares.  The share capital amounted to

 

22,673,592 per 30 June 2016.

 

Events after the period end

After the period has Storytel completed the acquisition of 100% of the shares of Norstedts Publishing Group KF (Cooperative Association) for a total purchase price of SEK 152 million on a debt free basis.  The acquisition was completed July 1, 2016.

 

Future reporting dates

Interim report January-September 2016 will be released November 14, 2016.

 

[NewbieD]

A few follow up questions: How concentrated is book publishing in the markets you mentioned?  Relatedly, why don't book publishers create their own service?  [i realize Hulu doesn't appear to be working out too well, and Storytel's move into publishing is designed, in part, to deal with that.]  Would that even be permitted under the relevant competition laws?

 

The other major book publisher (apart from Norstedts that Storytel bought) here, Bonnier, are trying to start up their own subscription service. It's called Bookbeat. Seemingly it has a hard time getting traction. To me it seems the entrepreneurs will outclass the hired hands from the Big Company. Bonniers effort looks like similar catchup as Barns and Noble with Nook. Bonnier books are also on Storytel and Storytel and Bookbeat are identically priced at 169 SEK/Month.

 

Their model seems to attract people who otherwise don't listen to books. Ie alot of mothers with Children who listen while they do laundry or cook etc. Maybe it feels easier for them to have a fixed cost than feeling they spend money each time they listen; I don't know. About 70% of customers so far are women, although men are increasing in share.

 

[TedKord]

Here the headline financials from Bloomberg in SEK:

 

                2013      2014    2015    LTM 6/16   

Rev         19.6       125.4   298.6 404.5

EBITDA -10.2    1.7         5       22.4

Net Inc -11.2       3.9   8.8       3.9

 

Mkt Cap 28.1       29.8   907     1814.1

LTD           0         0     32.9     32.9

 

Gotta love the growth, but it's trading at 90x BITDA if Bloomberg's numbers are correct. You have to be REALLY confident that there is a moat here.  BTW, sorry about the lousy formatting. I don't know how to drop a spreadsheet into this.

 

[KJP]

Here the headline financials from Bloomberg in SEK:

 

                2013      2014    2015    LTM 6/16   

Rev         19.6       125.4   298.6 404.5

EBITDA -10.2    1.7         5       22.4

Net Inc -11.2       3.9   8.8       3.9

 

Mkt Cap 28.1       29.8   907     1814.1

LTD           0         0     32.9     32.9

 

Gotta love the growth, but it's trading at 90x BITDA if Bloomberg's numbers are correct. You have to be REALLY confident that there is a moat here.  BTW, sorry about the lousy formatting. I don't know how to drop a spreadsheet into this.

 

From the segment report available here:  https://storytelco.files.wordpress.com/2015/10/delacc8arsrapport-jan-juni-2016-storytel-ab-publ.pdf

you can see that the Swedish segment appears to have reached scale and is running at 30% "contribution margin," nearing SEK 100 million in annual contribution, and still growing quickly, while the non-Swedish segments are sub-scale and losing money, but also growing. 

 

Because of the language barrier, I can't tell what costs are included in the segment-level contribution margins they disclose, but at current prices I think you have to believe they'll reach scale in at least some of the other markets.  In addition, I don't think the financials include results from the recent acquisitions.

[NewbieD]

 

Gotta love the growth, but it's trading at 90x BITDA if Bloomberg's numbers are correct. You have to be REALLY confident that there is a moat here.  BTW, sorry about the lousy formatting. I don't know how to drop a spreadsheet into this.

you can see that the Swedish segment appears to have reached scale and is running at 30% "contribution margin," nearing SEK 100 million in annual contribution, and still growing quickly, while the non-Swedish segments are sub-scale and losing money, but also growing. 

 

Because of the language barrier, I can't tell what costs are included in the segment-level contribution margins they disclose, but at current prices I think you have to believe they'll reach scale in at least some of the other markets.  In addition, I don't think the financials include results from the recent acquisitions.

 

The contribution margin is income minus content costs and marketing. Content costs are about 55% for the content they don't own themselves.

 

Agree with your take that they need to succeed in one or two more markets to be a good buy. Growth in Sweden is probably at the inflexion point where it will start to slow down because the market is becoming saturated. Sensortower.com has reviews from Apps and from there I can see that the number of reviews from Netherlands is decreasing slowly but steadily so there seems to be some traction at least. The seller of Mofibo that they bought is now running the Netherlands effort. He's got decent share of stock. Talk in english:

 

One point from this talk is that he mentions that Mofibo had a fixed cost per book of content. This means they had a fixed income per customer and a variable cost - loosing money if someone listened to many books. From what I understand this is not the case with Storytels agreement. They instead distribute  55% of the monthly income from each customer onto the content providers who served books for the customers. Less share for the content they made themselves.

 

The financial from last Q includes the streaming service proforma for all Qs but not the book publisher. The book publisher had  revenues of 435 MSEK and 37 MSEK net income in 2015. Result is volatile though. Bought for 152 MSEK.

 

Has there been any attempts at subscription audiobooks in the US? If yes, why did it fail?

[KJP]

 

Has there been any attempts at subscription audiobooks in the US? If yes, why did it fail?

 

There are several audiobook subscription services in the US, including Audible, Downpour and Scribd.  To my knowledge, none of them offers unlimited reading.  Instead, you get a certain number of books with your subscription and then have to pay per book if you want more. 

[NewbieD]

Q3 report coming up on monday on this one. It seems to be chugging along. The CFO bought shares for her likely net worth (young) at 30 days before (last possible trading time).

 

They were at an arabic speaking book fair so probably looking to expand to that area (or just want to serve all the arabic speakers in Scandinavia:))

[NewbieD]

This has now launched in Spain, Russia and India amongst others. If there are any CoBF readers from those markets it would be interesting to hear their take on the viability of the product in those countries/languages.

[NewbieD]

In case anyone is interested, Storytel has now switched to english for its official reporting and communication.

They are also launching a Kindle-like device. Unsure what to think about this.

[NewbieD]

This has kept growing well during the last 18 mths, feels like they will keep delivering for many years. Presentation from first Capital Markets Day held yesterday, here:

 

https://investors.storytel.com/sv/wp-content/uploads/sites/3/2020/01/storytel-capital-markets-day-january-2020-1.pdf