After the Amazon Partnership announcement Linkfire management organised calls with major investors. We spoke to the company, the Pareto Securities analyst, and other shareholders. Below is my take on the conversations:
Linkfire Investment Opportunity Summary:
- 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 has 70% market share in its segment. The penetration is still very low.
- Linkfire revenues have grown at 40%-60% CAGR with a stable 76% gross margin. The growth is accelerating further in 2022 to 50-70%.
- Linkfire managed to dominate music industry. They will now enter with the same product podcasts, movies and games. These new areas will multiply the revenue opportunity.
- Very strong catalysts in the next six months.
Amazon Partnership is a transformative deal for Linkfire. It is important for two reasons:
- It is further increasing the revenue acceleration
- It is increasing Linkfire’s leverage towards its partners – the other streaming companies and the record labels and artists
The company had a standard affiliate deal with Amazon before and it was not a global agreement. It is also fair to assume that the pricing was significantly lower than the current deal.
Linkfire makes the highest returns in developed markets where the rates are highest. Amazon is strongest in the developed markets. Therefore, the deal should help Linkfire to increase fees in the most profitable segment.
The top three streaming companies have around 60% subscriber market share (Spotify 31%, Apple Music 15%, Amazon Music 13%). Linkfire now has two of them as a client (Amazon and Apple).
Amazon´s importance is increasing; it increased its market share from 13% to 15% just in 1Q22.
Amazon and Apple partnerships must be a powerful selling point with the streaming clients. After the deal, the largest streaming companies must have been in contact with Linkfire. They all must be worried that Linkfire is now incentivized to work closely with Amazon and Apple, which would increase the market share of the two at the expense of others. The Amazon deal should therefore enable Linkfire to accelerate the completion of similar deals with other major streaming companies.
The Amazon transaction is also a big selling point for Linkfire subscription clients – the artists and the record labels. It is a rubber stamp on Linkfire capabilities by the best in the industry. Linkfire should be able to accelerate its content client numbers as well as the pricing power is increasing by such deals.
Pareto analyst estimates that Amazon transactions alone should be able to double commission-based revenues already in 2022 (see my yesterday post with details). If other deals come along, the revenue acceleration would increase further.
Linkfire is working to replicate its business model to other areas. The next ones in line are podcasts and audiobooks. These industry segments are fragmented; there are many content providers. The Amazon deal may indicate that Linkfire would most likely enter the area in partnership with a major player in Audiobooks and Podcasts. With a strong partner on board, the capture of the smaller partners would be much faster. Amazon deal should help in getting a strong partner in Audiobooks and Podcasts on board.
We are very bullish on Linkfire. The Q1 report is due on 25 May 2022.
Link to the 2022 annual report presentation – very good document:
Link to the investment thesis:
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