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BEST OF THE WEEK
And another thing...
Welcome back to Best of the Week, with Triple M Classic Rock as today's writing soundtrack (I prefer to never be more than 30 minutes from a Queen song).
This week: Nielsenâs bloody nose; How Pure Profile lost its founder; and WPPâs bad day.
Pure Profileâs low share price and big debt
Thursday saw Pure Profile share some bad news with the ASX.
It had made a loss of $10.2m, depending how you calculate it.
If the wisdom of the crowd is anything to go by, the moment things began to go wrong for Pure Profile was actually a year and a half ago.
That was the day the companyâs share price peaked, valuing it at nearly $80m.
Since then, the founder has left, the company has a new CEO, new chairman, a new auditor, a new chief financial officer and a fully drawn $10m loan expiring late next year. Its market capitalisation has fallen to less than a quarter of its high point
First though, a bit of history as the somewhat ironically named company has never really had the profile it deserved.
Pure Profile is an interesting firm, thanks to the vision of its founder Paul Chan, who left last month after more than 15 years at the helm.
Chan was one of the first to see the opportunities around advertising retargeting - and what it would mean for brands to be able to send tailored messages to consumers based on their online behaviour, likes and preferences.
Where his vision went further than many though, was the idea that consumers might be persuaded to share more information about themselves, in turn making what they see from brands more relevant. His means of persuading them to do so was to create online survey panels.
Customers would be rewarded with a few cents of credit for filling out surveys.
Unusually for technology startups, that was the vision from the beginning. Chan patented his idea for âa method and system for permission-based communication and exchange of information by means of a neutral and unified database in which consumers remain anonymousâ all the way back in 2003.
While most successful startups end up pivoting away from their vision in order to make money, it could be said that Pure Profile did the opposite. Early on, it fell upon a strong business model by being an early player in online research.
Brands came flocking to online research offers like Pure Profileâs, attracted to the fact that asking questions of the panels came at a fraction of the cost of paying market researchers to stand in shopping centres with clipboards.
Meanwhile, Chan spent the next decade and a half trying to pivot back towards his vision.
Half of the battle though was that it wasnât an easy vision to explain, and not necessarily what his clients wanted to buy.
About five years ago, some of the Mumbrella team met with Chan on a number of occasions. Weâd had an idea for our print title Encore - an annual survey of the publicâs level of recognition and feelings towards media personalities. We called it The Encore Score, and we used Pure Profileâs online panels to provide the survey data.
We ended up running it a few times - if memory serves, Hugh Jackman was always the best known and most liked, Kyle Sandilands the least. The first time we did it, the results were top item on both A Current Affair and Today Tonight.
But it felt like it could be something much bigger, which was why we kept meeting with Paul.
Yet heâd say very little in the meetings. I had the sense of somebody very clever, but no matter what we asked, it felt impossible to elicit a clear picture of what he was thinking. He may have had a vision, but he wasnât great at sharing it.
Meanwhile, Pure Profile was mostly growing. Ahead of its ASX float in 2015, it shared some numbers. Australian revenues rose from $7.1m in 2012, fell back to $6.6m in 2013 before rising again to $7.2m in 2014. Meanwhile the company fluctuated between a profit of $690,000 in 2013 and a small loss of $80,000 the following year.
By now Pure Profile had overseas operations too. 2014 saw it lose $418,000 in the US and $122,000 in the UK.
Then Chan and his board, chaired by lawyer Fred Swaab (who later passed away), made a transformative move. They took the company public, onto the ASX. As part of the deal, they bought programmatic agency Sparc Media.
The float was successful and suddenly, Pure Profile had scale, even if ASX investors didnât seem to know what to make of it.
Its share price pinged around from 49c on its July 31 2015 debut, down to 35c a couple of months later, then back up to 59c the following May 2016, which it hit one more time in July 2016.
From the outside, itâs hard to tell from the available ASX documents how the company was really faring.
The Sparc acquisition meant that when Pure Profileâs first set of numbers came out, it was hard to get a picture of like-for-like progress. Revenues were up, but youâd expect that when two companies have effectively been brought together.
But again, with hindsight, you can see glimpses of the bigger picture that Chan saw. Imagine being able to deliver ads programmatically to a big pool of consumers who have chosen to share information about what they like.
Meanwhile, the company had begun to work with News Corp in Australia and doing more with its own audience. You can see the potential for News Corp, with its growing cadre of easily identifiable digital subscribers.
Yet for all the information on the ASX, Pure Profile appeared to share little about how it was going on developing a deep pool of opted-in consumers.
I think there may have been a flaw in Chanâs vision on this point.
In truth, I suspect those who choose to spend hours filling out online surveys in exchange for a few cents are not typical of the wider public. Which raises the question of how big that pool of people could ever be. (And thatâs without even opening up the Pandoraâs Box of the debate about the quality of online survey pools)
Plus, I suspect, these people donât really think of themselves as having volunteered for retargeting, I suspect. They just think theyâve filled in some surveys.
Meanwhile though, Pure Profile kept doing its best to give good news to the ASX.
In September 2016 it announced it was buying lead generation company Cohort Digital for $15m in cash and $3m worth of shares. Thanks to earnout provisions, this would later rise by a further $4.6m and 8.9m shares.
With Cohort boasting revenues of $27m and profit of $3.7m at the time, it would add to Pure Profileâs financial performance.
Yet it doesnât look a bargain for Pure Profile shareholders when the owners of Cohort received about $25m from a company whose market capitalisation is as of today $18m. Such acquisitions are supposed to increase the market cap, not shrink it.
I suspect, things began to go properly wrong shortly after the deal was signed, although Pure Profile was slow to let on.
New chairman Andrew Edwards became executive chairman. When we reported last year that this meant Chan would now report in to him, it triggered a flurry of phone calls from within Pure Profile, with some insisting this was incorrect, and others the opposite.
Meanwhile, Matt Berriman resigned as director after just a year.
It certainly felt like power was shifting.
A few days later came the news that Chan was moving from CEO of the company he founded to chief innovation officer, which sounded like an odd career progression. He was to be replaced by digital industry veteran Nic Jones.
The first order of business once Jones got behind the desk a few weeks ago, was to announce that Chan would actually be leaving.
Which brings us to this week, and [the first market update under the new management](.
The very first bullet point of the six monthly investor presentation from Edwards promised âimproved communications with stakeholders, including clarity around our value proposition and key drivers of financial performanceâ.
The accompanying presentation was not particularly clear. Revenue was down 12%, it revealed. And EBITDA profits - earnings before interest, taxation, depreciation and amortisation were just $100,000. But âunderlying EBITDAâ was actually a $1.3m profit, the company said.
Except it didnât when one turns to the companyâs official Appendix 4D report. (Thereâs a terrific backgrounder on Big Unâs own ASX shenanigans in todayâs Weekend AFR - it calls the ASX appendix the âtruth serumâ of the stock exchange, the document where the real situation has to be outlined.)
In the case of Pure Profile, the truth looks a bit ugly.
The loss after income tax was $8.8m.
That includes an âimpairment of assetsâ of $6m. They donât say what it was, but I suspect itâs their way of saying Cohort isnât worth what they paid for it.
They also report a $1m âloss on disposal of intangible assetsâ. That one has me stumped.
And another number leaps out. The companyâs finance costs shot up to $766,000.
I suspect thatâs connected with another announcement late last year, which represented Chanâs final deal.
In its previous annual report, the company had said it was in talks with CommBank about extending its loan facility, which it would need in order to pay what it owed in earnouts to the former owners of Cohort.
The talks obviously failed, because Pure Profile signed a $10m loan facility with âa global funds managerâ, with a fixed interest rate of a whopping 9.5%.
In addition, the lender has first ranking security over all of the companyâs assets. The loan becomes repayable late next year.
The truth serum appendix also mentioned that the $10m loan facility has already been fully drawn, which doesnât appear to leave much room for manoeuvre. When the company next updates the market, Iâll be going straight to its cash situation, curious about whether itâs on track to have enough in the bank to repay the loan in about 18 months.
On Friday, [Mumbrellaâs Paul Wallbank chatted to the new boss Jones](. Although heâs been away in a global role for Vevo, Jones is a familiar face in this market including big sales roles back in the day with the likes of Fairfax Media, News Corp, Yahoo and ninemsn. Heâs also chairing the board of advisers for the Advertising Week conference in Sydney later this year.
The challenge for Jones is that he has not only inherited a mess, but heâs also inherited somebody elseâs vision. In a progamatic sector dominated by much larger US-based operations, the only point of difference Pure Profile will be able to offer is a distinctive vision, and that will need to be developed - quickly - by Jones.
Or as he put it in this weekâs investor presentation âI was excited to take on the opportunity. Iâm even more excited now.â
I suspect heâs got a lot more excitement ahead of him.
WPPâs woes
As regular readers of this email may have noticed, I rather enjoy reading company reports.
Among those I always look forward to are from WPP. Not for boss Sir Martin Sorrell the dry language of many CEOs. If he hadnât fallen in with the accountancy crowd, heâd have made a great writer.
And thereâs no better place to get a better sense of how the communications industry is travelling then to read his update.
So [Thursday nightâs missive was a scare](. Revenues were down, which never happens with WPP whose model is to always, always grow, albeit often through acquisition.
In the coming weeks, thereâs a piece of work I need to do on looking more closely at the financial performance of each of the global holding companies. I suspect there will be lots of clues on CMO sentiment globally. Particularly on whether they are still entrusting their digital budgets to their agencies, which I suspect they are moving away from.
But that will have to wait for another week. For now, the fact that the biggest global business story of the week was WPPâs share price crashing by an unprecedented 15% is in itself an important signal.
Nielsenâs bloody nose
Remember the days when advertisers cared about third party verification of audience data?
Theyâre ending.
The magazine companies no longer audit their print circulations. News Corp had dropped out of the newspaper print audit. And now the contagion is spreading back to digital.
I suspect the changed sentiment evolved from the fact that many advertisers came to the conclusion that the benefits of using walled garden digital platforms like Facebook and Google outweigh the downside of lack of third party verification.
And even with occasional furores over misstated metrics, the imperative of demanding to have everything audited has faded.
For the measurement companies, this changes the dynamic.
For years Nielsen has dominated.
About a decade back, one media agency CEO complained to me about the necessity at the time to subscribe to their services tracking where ads had run. Apart from staff, Nielsen was his biggest expense, he said, adding (distastefully): âEvery time they leave my office, I feel like Iâve been raped.â
While that sentiment was extreme, itâs certainly fair to say that not all of Nielsenâs customers love the organisation.
So it was interesting to see [Fairfax Media act on Friday to withdraw from Nielsenâs Digital Content Ratings](.
It came just a couple of days after we reported that [Nielsen had been failing to capture traffic delivered via Google Accelerated Media pages]( despite suggesting otherwise.
A dynamic where Nielsen needs its customers more than they need Nielsen will be an interesting one to behold.
Speaking of customers, itâs time for me to go and commit some acts of extreme consumerism.
Should the fancy take you, Iâll be reviewing the newspapers on ABC News Breakfast at about 6.45 on Monday morning.
As ever, I welcome hearing from you at tim@mumbrella.com.au . My colleague Josie Tutty is running the newsdesk this weekend; you can reach her at josie@mumbrella.com.au.
For now though have a tremendous weekend.
Toodlepip...
Tim Burrowes
Content director - Mumbrella
Mumbrella | 46-48 Balfour Street Chippendale NSW 2008 Australia
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