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Pricing virality: is Audioboom the YouTube of Aim?

Alex Newman

“The Audioboom product is... the audio equivalent of YouTube”

- Audioboom 2014 listing prospectus

YouTube was less than two years old when it was bought for $1.65bn in 2006. It's the third most visited website on the planet, after its owner Google, and Facebook, and has changed the way we use the internet. Audioboom Group (BOOM) was only incorporated in 2009, and by the standards of the above social media behemoths, it is still embryonic, with 3.4m users and revenues of just £51,000 for the last financial year. But since floating on Aim as the only quoted social media company in London a year ago, by reversing into shell company One Delta, the shares have soared by more than 1,000 per cent, valuing the company at £46.5m.

This week, the company released its financial results for the 11 months to 30 November 2014 amid a flurry of statements, including the launch of its Android app and an exclusive partnership to broadcast content from Russell Brand.

So, how is Audioboom like YouTube? Well, that's no longer the best comparison, the company says - Netflix is closer to the Audioboom model. But the similarities with YouTube are a useful way of understanding the business strategy, which is to become the go-to global site for streamed non-musical audio content. Like YouTube, users can upload their own material and share it through Audioboom or other social media. And like Netflix, the company has partnered with professional broadcasters and content providers - 2,300 at the last count- so there is at least something worthwhile to listen to.

But in a very important sense, Audioboom is not like YouTube, which was never listed as a public company at a pre-revenue stage, when a valuation is so hard to achieve. At the time it was bought by Google in 2006, YouTube had already 'gone viral' itself, racking up 100m views in the months before the deal.

Valuation models for social media companies are notoriously uncertain and, like all internet companies, remain in the long shadow cast by the prices paid for the online companies that floated in the dot-com boom. At the pre-revenue stage, price-to-earnings forecasts for Audioboom are redundant, as is price to book value, given the company's assets mainly comprise intangibles (as well as external factors) which will help the platform to go viral and stay ubiquitous. Direct comparisons with peers are also awkward, though the benchmark valuation for companies in Audioboom's shoes tends to be a combination of registered users and hits. Users of Facebook and Twitter are worth more than $100 each in advertising revenues to those companies. By comparison, forecasts for Audioboom users range between $25 and $45. These would be generated from a combination of advertising, premium content and the now commonplace freemium model (which blocks advertising for users prepared to pay a small fee). Broker Arden Partners gives the company a target price of 24p for 2016, based on annual revenues of $25 per user, and 8m users.

Audioboom has already pre-sold 900,000 ad spots for 2015, and Arden projects sales of £3m for the year. But the top priortity at the moment is attracting more content partners and - by extension - users. Chief executive Rob Proctor says 7-8 million represents a critical mass, though at the current rate of growth (there were 900,000 at the end of 2012, 1.92m at the end of November 2013 and 3.14m a year later) projections for 8m users by the end of 2016 sound hopeful.

What the company has achieved is to land a prestigious list of media partners and content providers, including Sky Sports, the BBC and Al Jazeera. Audioboom is also understood to be finalising a deal with a personalised in-car online radio service, which will put the company into 28 million cars in the next year. And while, as an anti-capitalist revolutionary, Russell Brand might object to the idea that his signature is being used to attract investment in a company, his huge online following should help Audioboom grow its user numbers. It may frustrate some early shareholders at this stage, but focusing on content providers now is probably Audioboom's best chance of success. "Once a content provider has taken the trouble to embed Audioboom software on its platform," writes Arden Partners analyst Paul Morland, "there should be little incentive for them to consider alternative third-party audio platform providers."

As to the whether we're entering a golden age of audio, or whether Audioboom can supplant podcasts - "a dirty word" according to Proctor, who says the format is boring and too long - is perhaps the ultimate question for the company. It's got a limited amount of time to be proved right.

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