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£15m crunch time for Phorm: Do its predictions add up?
11 Jun 2009 | 11.40 Europe/London
The countdown for Phorm could well and truly be starting, revealing by the end of the year if it really is on track to live up to its hype and serve £239m worth of adverts within two years.
At next week’s preliminary results nobody will be concerned about income, because there is none, but instead, all attention will be focussed on exactly how fast the company is burning cash.
The conundrum that will have investors, analysts and industry experts scratching their heads is why a company that claims to be well funded after raising £32m (at £20 per share) from institutional investors last year has felt the need to this week raise a further £15m (at £4.50 per share)?
A spokesperson for Phorm claimed the money was not needed because the company had mostly burned through last year’s £32m. Instead, the spokesperson told SamKnows that it is “a prudent step to ensure the company remains fully funded through an important stage of its development, particularly as Phorm moves towards deployment in Korea and the UK.”
Furthermore the company claims that the City is keen on internet advertising stock. “It made sense to do it now given the general enthusiasm in the market for stocks of this nature - which is supported by the fact that the offer was so oversubscribed - Phorm had originally intended to raise less,” the spokesperson added.
While that may cause many internet and media companies, including Phorm, to examine their own stock price and wonder when their rally is due, it begs the question of why sell what should amount to around a fifth of the company for a quarter of what the stock was worth a year ago? Why raise ‘as a prudent step’ £15m at a far lower price than a year ago when you believe the company is on the verge of a UK roll out that would start to start generating income?
Surely, if BT were to turn constant talk of ‘evaluation’ in to a full scale roll out in the second half of this year, Phorm would be able to raise more money then and almost certainly at more than the £4.50 per share it has just received.
Projections
This is not the only curious aspect to Phorm’s finances, or at least its financial projections. One of the brokers which helped it raise last year’s funds as well as this week’s cash injection, produced figures at the end of March which suggested the service would be making £50m per year in two years time (roughly the same amount of money it has borrowed in past year through two rounds of funding).
The report from Mirabaud was working on the assumption that BT would deploy during the latter of half of this year followed by Carphone Warehouse and Virgin Media in 2010.
It claims that if half of BT’s subscribers sign up (a tad optimistic, perhaps!) the company will generate £600,000 worth of behaviourally targeted adverts this year, rising to £6.5m next year and £239m in 2011. Of this £239m, £50m would go to Phorm, once partners and costs had been paid.
However, the figures do rely on between 50% to 60% of each ISPs voluntarily opting-in to have their web surfing habits tracked (albeit anonymously).
Also the ability to handle £600,000 worth of advertising before the end of the year will raise some eyebrows in the internet advertising industry. It is understandable that without a commercial service Phorm has yet to officially sign up any advertising agencies or other networks to supply it with adverts.
However, Josh Krichefski, deputy managing director at digital agency BLM Quantum, which handles behaviourally targeted adverts for household name brands estimates that the embryonic market for the inventory is worth around £200,000 per year at the moment. Though this is likely to set to grow ‘exponentially’, in his words, it is unlikely that a new entrant that has yet to secure any customers, ISP, agencies or advertisers would be able to treble the market in the last six months of a year, from a standing start.
Hence it underlines how the next six months are absolutely crucial to Phorm. Its broker is basing its rosy future predictions on BT rolling out a service soon and then being joined by Carphone Warehouse and Virgin Media, with smaller companies, who have yet to declare even an interest in the technology, following in 2011 to 2012.
It intensified the interest in next week’s preliminary report when the figures released should reveal whether Phorm has been burning through it cash pile quicker than expected. Although last year’s £32m may sound like a lot of money, its legal bill must be horrendous and its board has some serious top level talent, such as Norman Lamont and Kip Meek as non-executive directors.
If the company has not been burning through cash too fast, it raises the question of why it has raised more. Perhaps for additional kit within a participating ISP, ie BT, or perhaps to tide it over while it waits for BT to commit? Until BT ceases talk of ‘evaluation’ of results and gives a Yes or a No, it is impossible to know.
While this question remains so do doubts about Phorm’s finances, particularly its burn rate and, more so, whether its rosy predictions for future revenue can ever be met.
At next week’s preliminary results nobody will be concerned about income, because there is none, but instead, all attention will be focussed on exactly how fast the company is burning cash.
The conundrum that will have investors, analysts and industry experts scratching their heads is why a company that claims to be well funded after raising £32m (at £20 per share) from institutional investors last year has felt the need to this week raise a further £15m (at £4.50 per share)?
A spokesperson for Phorm claimed the money was not needed because the company had mostly burned through last year’s £32m. Instead, the spokesperson told SamKnows that it is “a prudent step to ensure the company remains fully funded through an important stage of its development, particularly as Phorm moves towards deployment in Korea and the UK.”
Furthermore the company claims that the City is keen on internet advertising stock. “It made sense to do it now given the general enthusiasm in the market for stocks of this nature - which is supported by the fact that the offer was so oversubscribed - Phorm had originally intended to raise less,” the spokesperson added.
While that may cause many internet and media companies, including Phorm, to examine their own stock price and wonder when their rally is due, it begs the question of why sell what should amount to around a fifth of the company for a quarter of what the stock was worth a year ago? Why raise ‘as a prudent step’ £15m at a far lower price than a year ago when you believe the company is on the verge of a UK roll out that would start to start generating income?
Surely, if BT were to turn constant talk of ‘evaluation’ in to a full scale roll out in the second half of this year, Phorm would be able to raise more money then and almost certainly at more than the £4.50 per share it has just received.
Projections
This is not the only curious aspect to Phorm’s finances, or at least its financial projections. One of the brokers which helped it raise last year’s funds as well as this week’s cash injection, produced figures at the end of March which suggested the service would be making £50m per year in two years time (roughly the same amount of money it has borrowed in past year through two rounds of funding).
The report from Mirabaud was working on the assumption that BT would deploy during the latter of half of this year followed by Carphone Warehouse and Virgin Media in 2010.
It claims that if half of BT’s subscribers sign up (a tad optimistic, perhaps!) the company will generate £600,000 worth of behaviourally targeted adverts this year, rising to £6.5m next year and £239m in 2011. Of this £239m, £50m would go to Phorm, once partners and costs had been paid.
However, the figures do rely on between 50% to 60% of each ISPs voluntarily opting-in to have their web surfing habits tracked (albeit anonymously).
Also the ability to handle £600,000 worth of advertising before the end of the year will raise some eyebrows in the internet advertising industry. It is understandable that without a commercial service Phorm has yet to officially sign up any advertising agencies or other networks to supply it with adverts.
However, Josh Krichefski, deputy managing director at digital agency BLM Quantum, which handles behaviourally targeted adverts for household name brands estimates that the embryonic market for the inventory is worth around £200,000 per year at the moment. Though this is likely to set to grow ‘exponentially’, in his words, it is unlikely that a new entrant that has yet to secure any customers, ISP, agencies or advertisers would be able to treble the market in the last six months of a year, from a standing start.
Hence it underlines how the next six months are absolutely crucial to Phorm. Its broker is basing its rosy future predictions on BT rolling out a service soon and then being joined by Carphone Warehouse and Virgin Media, with smaller companies, who have yet to declare even an interest in the technology, following in 2011 to 2012.
It intensified the interest in next week’s preliminary report when the figures released should reveal whether Phorm has been burning through it cash pile quicker than expected. Although last year’s £32m may sound like a lot of money, its legal bill must be horrendous and its board has some serious top level talent, such as Norman Lamont and Kip Meek as non-executive directors.
If the company has not been burning through cash too fast, it raises the question of why it has raised more. Perhaps for additional kit within a participating ISP, ie BT, or perhaps to tide it over while it waits for BT to commit? Until BT ceases talk of ‘evaluation’ of results and gives a Yes or a No, it is impossible to know.
While this question remains so do doubts about Phorm’s finances, particularly its burn rate and, more so, whether its rosy predictions for future revenue can ever be met.