News blog

7Digital

• BY: Andrew Hore |
• POSTED: 01/10/2014 |

Digital content platform technology developer and supplier 7Digital has raised £3.5m from the sale of one-third of its stake in Audioboom, which is nearly double the investment made by the company into the social media audio business.

The investment in the whole stake was £1.86m, although it had been revalued to £4.8m. The profit on the part-disposal was £1.9m.

7Digital had to get approval for its release from the lock-in arrangements agreed earlier this year when Audioboo reversed into cash shell One Delta, which was renamed Audioboom. After Audioboom’s latest share issue, 7Digital will still own 10.9% of the company (58m shares) plus a further 8.765m warrants exercisable at 1.5p a share. The remaining shares are subject to an orderly market agreement over the next 12 months.

Audioboom is raising £8m of new cash at 12.5p a share and there was excess demand which was partly satisfied by the 7Digital disposal. This will be used to finance the roll out of a new app, expand in North America and Asia Pacific, develop an aggregated advertising network and create Hispanic content and app. Audioboom had £3.06m in the bank at the end of May 2014 and there was a £654,000 cash outflow from operations in the previous six months – although excluding an acquisition adjustment the outflow was around £2m.

At 22p a share, 7Digital is valued at £23.6m. The remaining stake in Audioboom is worth £10.6m – based on a share price of 15.88p a share and assuming the warrants are exercised, thereby costing £131,000.

7Digital had £5.29m of cash at the end of June 2014 and the disposal increases this to £8.8m on a pro forma basis. The cash would probably not have lasted until 7Digital reached profitability without the boost provided by the sale of Audioboom shares. Now there is a bit of headroom. 7Digital is expected to be profitable in 2017.

The mix of revenues is changing as low margin download revenues decline and higher margin streaming revenues increase. This ws always expected to happen but the decline in download revenues is faster than anticipated. In the first half of 2014, revenues declined from £5.68m to £5.06m but gross profit edged up from £2.45m to £2.48m. The overall loss increased from £2.22m to £2.77m.

Recurring revenues increased from £1.55m to £2.21m and they will continue to increase in importance.

New contracts have been won and these provide initial revenues from linking-up the client to the platform and then monthly recurring revenues. The latest deal is with US-based Spanish Broadcasting System

Download the latest AIM Journal from http://www.hubinvest.com/AIMPDFSeptember2014_60.pdf