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Monthly Archives: February 2014

NZ Tech company’s EV/Revenue multiples

As a sequel to last week’s post about What is the right EV/Revenue multiple? We thought we would follow this up with the same EV/Revenue & ACMR graph – but relating to the six NZX-listed Tech companies. This also coincides with the release of Wynyard Group’s and SLI Systems’ financial statements earlier this week.

ACMR is Annualised Committed Monthly Revenue – which is the most recent monthly revenues annualised. While the size of the bubble represents the company’s overall Enterprise Value.

Chart 1 – NZ Tech companies

1

What is the right EV/Revenue multiple?

This is a question often asked, and is a difficult one to answer. To help visualise the relationship between Enterprise Value (EV), Revenue (ACMR) and the commonly used multiple, EV/Revenue we have created the following charts comparing online companies.

NB: ACMR = Annualised Committed Monthly Revenue, which is the most recent monthly revenues annualised.

Understanding the charts:

Along with each company’s position on the chart representing EV/Revenue multiple in relation to Revenue, the size of the bubble represents the company’s overall EV.

Chart 1 – Low to Mid range ACMR companies

Chart 1

Chart 2 – High ACMR companies

Chart 2

 

Directories & Private Equity

Print-form directories have historically been a key cornerstone part of telecommunication businesses worldwide. This is changing, and what is occurring is a perfect example of Disruptive Innovation usurping a Sustaining Business Model.

History will show that the sale of Yellow Pages to a US-based private equity firm for NZD $2.24 billion was timed to near to perfection. At the time of sale in 2007, print directories were still a cornerstone aspect of telecommunication businesses. The Yellow Pages in particular had experienced constant revenue growth prior to the sale. And it’s also not hard to understand this, most people remember getting their White and Yellow pages in the late 1990s and early 2000s – and actually using them. Supplementing this, it was before the Global Financial Crisis, a period of cheap capital, in particular for private equity firms.

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Yellow Pages vs Trade Me

Following the 70% sale of the Sensis directories business from Telstra (Australia) to a US based private equity firm, Platinum Equity for A$454 million – blog post to come later – we thought we would illustrate the significant differences between NZ’s largest directories business vs NZ’s largest online auction/e-commerce website.

The following two graphs highlights the compelling difference comparing Yellow Pages (a largely print-based business) to Trade Me (a 100% online business). The results below show the impact technology has had on each company over the course of the last seven years:

Yellow Pages vs Trade Me - Revenue

Yellow Pages vs Trade Me - EBITDA

Note: the two data points (we are only showing the 2007 and 2013 numbers) for both Yellow Pages and Trade Me are from the financial years 2007 and 2013.