Linkfire – acquisition of the major competitor strengthens dominance

Linkfire is Denmark based and Sweden listed smart link service provider to all major music streaming companies. Yesterday, Linkfire announced acquisition of smartURL, the pioneer of the smart links and the second largest player in the area. By doing so, LInkfire strengthens its market position. We are long Linkfire.

Five bullet point summary on Linkfire opportunity:

  • There are many streaming companies. But there is just one dominating service company that serves most of them with 70% market share. Its name is Linkfire.
  • Linkfire connects consumers on social platforms who wanted to download a song to music streaming companies that provide the content. Linkfire collects revenues from both.
  • Linkfire revenues have grown at 40%-60% CAGR with a stable 76% gross margin. The growth is accelerating further in 2021.
  • Very strong catalysts in the next six months should cause the share price to double.

Pareto summary of the acquisition

Linkfire consolidates smart link market, will help reach the 50% growth target

Linkfire acquires smartURL a smart link provider and competitor to Linkfire. The transaction is an asset buyout from Gupta Media. The transaction will increase consumer connections (traffic) as well as the monetization abilities that Linkfire adds to the combined offering. The strategic partnership with Gupta Media will improve Linkfire’s overall RPM performance and bring significant expertise in digital advertising, an underdeveloped part of the Linkfire business model. The deal is expected to close late in 2021 or early 2022 and to add an uplift of at least 15% to current revenues of Linkfire.

Transaction value of max USD 4.8m, of which 2.35M is initial payment and 2.45M potential earn-out

The transaction is a combination of cash and equity for a max value of USD 4.8M. Initial consideration of USD 2.35M, equally split in cash and Linkfire shares. The cash portion of USD 1.175M, is financed with existing funds. The number of shares will be determined via a 5d pre-signing and a 5d post-signing average price (VWAP). Based on Wednesday’s closing price, the issue would amount to 1.36m shares, and a dilution of 2.3%. A potential earn-out of up to USD 2.45M (in cash or shares) could be paid over the next 2 years if certain targets for commission revenues are met.

smartURL, a pioneer in the music smart link market, backed by digital-media powerhouse Gupta Media

smartURL was founded in Israel in 2009 and was the market leader until Linkfire took over in 2016-17; up until then the major music labels had been users of its platform. Since then, the company has added more functionality to its platform and its service now provides similar functionality to that of Linkfire at a similar, but slightly higher, price point. It currently offers three main subscription plans: a free one, one called “Pro Plan” at USD 49/month and one called “Premium Plan” at USD 249/month. Even though the company has lost market share in the past few years it still has a lot of older links that generate significant traffic, although not reaching Linkfire’s traffic levels. smartURL is owned by Gupta Media, a company specialised in digital marketing.

Linkfire will present at Pareto TechSaaS event next week (Nov 10-11). The Q3 results will be released on Nov 18th.

Detailed investment thesis:

https://seekingalpha.com/article/4439470-linkfire-music-streaming-play-market-leader-growing-above-50-percent

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Disclosure: 

The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice.

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