Viggle Inc. (VGGL) shares are heavily undervalued based on multiple factors.

Viggle close Friday 6/26/2015: $2.05

Highlights

  • Viggle offers a new and highly disruptive platform in the mobile advertising market which is expected to grow from $7 billion in 2013 to over $40 billion in 2017
  • Company is experiencing rapid expansion of their platform as a comprehensive entertainment rewards program available across the web, with technology protected by a strong patent portfolio
  • Fiscal Q3 revenue increased 52% year over year to $5 million as nearly one million new users registered with the company during the quarter and net registered users increased to 8.95 million, more than double the 4.14 million the company had in the year ago period
  • The company’s ad targeting and viewership enables a much higher monetization rate than other mobile ad platforms used by competitors
  • Advertising partnerships and clients include blue chip names like FOX, CBS, A&E, Turner, Microsoft, Target, JetBlue, Best Buy, Pepsi, and more
  • Shares are currently trading at a discount to a recently completed $9 million raise at $2.50/share
  • Management has a strong track record of building companies, taking them public, and them selling them to some of the largest media companies in the world
  • Management’s incentives are highly aligned with minority shareholders as they hold 74.47% of the shares outstanding
  • Viggle market cap

 

Company Description

Viggle - logo

Viggle is a mobile and web-based entertainment-marketing platform. The platform uses incentives to make content consumption and discovery more rewarding for media companies, brands, and consumers. Viggle guides consumers towards various forms of media consumption with television enhancement, music discovery, content publishing, and distributed viewing reminders.

 

Viggle helps consumers decide what to watch and when to watch it. It also broadens the viewing experience with real time games, related content, and rewards. Viggle provides their advertising clients with targeted interactive ads to amplify their TV messaging to verified audiences. For media companies, Viggle delivers promotional benefits by driving viewers to specific shows, engaging them in a richer content experience and increasing awareness of promoted shows through web, mobile and social channels. Viggle also has a content website, Wetpaint.com, which extends the company’s promotional capabilities by reaching potential viewers before a TV show is broadcast and by allowing viewers to continue the conversation with additional show coverage after the broadcast date. Wetpaint has become a top 10 entertainment web destination for millennial women. Viggle properties also include NextGuide and Choose Digital.

Viggle Inc. has technology that helps consumers search for media and set reminders to watch their favorite TV shows and movies wherever they are offered. In addition, the company recently launched a music service which allows consumers to check-in to songs on Viggle and earn points. While watching TV or listening to music, a Viggle user taps the “check-in” button, which activates the device’s microphone. Viggle collects an audio sample of the content the user can hear and uses technology to convert that sample into a digital fingerprint. Within seconds, that digital fingerprint is matched against a database of reference fingerprints that are collected from approximately 175 English and Spanish television channels within the United States and over 20 million songs. The company is able to verify TV check-ins across broadcast, cable, online, satellite, time-shifted, and on-demand content as well as most songs cataloged on Apple’s iTunes music library.

The ability to verify check-ins is critical because users are rewarded with points for each check-in and engagement (defined as an advertisement view, song match, web video view, poll, video quiz, game, or slide show). Users can redeem the points within the rewards catalog for items that have a monetary value such as unique deals and offers, products, sweepstakes, charitable donations, select retail gift cards and Viggle-branded and other merchandise. Once a user has “checked-in” to content, the App provides a set of optional games, tools, and information to enhance the consumer experience.

Viggle generates revenue from advertisers who display their advertisements on the Viggle App and the wetpaint.com websites. The company sells advertising directly to advertising agencies, brand advertisers, television networks, and to third party mobile advertising networks such as AdColony, Tremor, and YuMe. The company targets male and female consumers between the ages of 18 and 49 and all products are free to users.


VGGL Share Structure

Shares outstanding:  20.95 million
Market cap:  $44.62 million
Insider & 5% owners:  74.47%
Trading float: 8.56 million


Strong Product

Viggle has a strong product as illustrated by a very high engagement rate. A high engagement rate means users are more valuable to advertisers as they view the advertisement rather than passively allow it to pass. Advertising on Viggle had a 94% cost per completed view (CPCV) completion rate, a 63% cost per thousand impressions (CPM) completion rate, and a 53% engagement rate on CPCV.

According to Celtra’s Q1 2015 Digital Display Advertising Report, the average completion rate is 47.3% well below Viggle’s completion rate of 63% illustrating a strong value proposition to Viggle’s advertisers.  The higher completion rate allows Viggle to charge more for advertising.


Blue Chip Partners

Viggle’s highly engaged user base has led to partnerships with Blue Chip Advertisers, as illustrated below.

Viggle - blue ship partnerships

 


Intellectual Property

Viggle has 11 issued patents, the most recent of which was awarded on June 11, 2015, (see press release), and 10 additional patents pending including a patent for its rewards program for media and entertainment usage. These patents protect Viggle’s product from competition. A few of the company’s other patents are illustrated below.

Viggle patents

The company’s most recent patent win


Strong Management Track Record

 

Viggle Management

The Chairman and CEO of Viggle Inc., Robert F.X. Sillerman, has a very strong track record of building companies, creating shareholder value, and selling companies at a substantially higher price.

In 1978, Mr. Sillerman and deejay Bruce Morrow bought two radio stations in upstate New York for $1.875 million. Over the next 7 years the company acquired additional radio and television stations throughout the east coast. In 1985, Mr. Sillerman acquired KJOI-FM, Los Angeles for a then record-setting $44 million, as well as other stations in Denver, Detroit, Minneapolis, Washington D.C., Houston, Philadelphia, Los Angeles and New York City. In 1989, Sillerman’s radio conglomerate merged with a unit of Westinghouse Broadcasting in a then record-setting transaction worth $727 million. Later that year, Mr. Sillerman formed Capstar Communications. Capstar applied for and received permission to operate more than one class of radio station in the same market, which ultimately led to the Telecommunications Act of 1996 allowing for ownership of multiple stations in single markets. Capstar merged with Command Communications, another radio group Sillerman founded, ultimately changing its name to SFX Broadcasting. SFX bought up enough stations to become the nation’s seventh largest chain. In 1998, SFX Broadcasting sold its 71 radio stations for $2.1 billion to a private equity group.

During the sale of SFX, Mr. Sillerman kept two small concert promoters and renamed the company SFX Entertainment. He then built the business into a conglomerate of regional rock promoters, which he sold to Clear Channel for $4.4 billion in 2000.

Mr. Sillerman founded CKX in 2005. The company acquired a number of media assets starting with the image rights of boxer Muhammad Ali. In 2005, the company bought 19 Entertainment from Simon Fuller acquiring a majority share of the rights to the Idol series, including American Idol, Pop Idol, So You Think You Can Dance, and many other international versions. Later that year, CKX bought an entertainment agency, with artists on its roster such as Robin Williams, Billy Crystal and Woody Allen. Also in 2005, the company bought 85% of the rights to the name, image and likeness of Elvis Presley, and the operations of Graceland, from the trust of Lisa Marie Presley. In 2011, Apollo Management purchased CKX in 2011 for $512 million.

In addition, management’s incentives are highly aligned with minority shareholders, as they own 74.47% of the company’s shares.


Enormous Market Opportunity

With a strong product protected by intellectual property and a well-connected management team with a track record of success, Viggle is well positioned to take on a fragmented and growing mobile marketing industry. As illustrated below, the mobile advertising market is expected to grow from $7 billion in 2013 to over $40 billion in 2017, and we believe Viggle’s strengths will allow the company to outgrow the market.

 Viggle Market Opportunity

 


Strong Growth Reported

From the launch of the Viggle App on January 25, 2012 to March 31, 2015, Viggle has a total of 8,953,697 net registered users. As of March 31, 2015, the company’s users have checked-in to 478,106,222 TV programs and 146,558,719 songs and spent an average of 61 minutes and 55 seconds of active time within the Viggle App per session. Over 892,852 users have tagged a song in the Viggle App. As of March 31, 2015, users have earned over 95 billion points, including 6.6 billion points through Viggle’s new music service. As of March 31, 2015, users have redeemed over 57 billion points for a total of approximately 4.7 million rewards, for an average of 12,182 points per reward redemption. The total retail value of rewards redeemed through March 31, 2015 is approximately $24.3 million.

In addition to the growth seen in Viggle’s fiscal Q3 2015 report, the company signed a sales agency agreement with SFX (web site) that was created to significantly bolster Viggle’s brand partnership, media and sponsorship capabilities. The combined sales organization at SFX now represents Viggle and Wetpaint to brand advertisers and is selling inventory for both companies.

 

As illustrated below, the strength of Viggle’s product has allowed the company to triple its user base in less than two years. Revenues are seasonal so they will not follow the straight-line growth that the user base is showing.

Viggle - registered users


 Selected Key Metrics: Viggle vs. Internet Software and Services Sector

Viggle Inc. (VGGL)

Internet Software and Services
Price/Sales (TTM)

1.37

52.88

Price/Book

1.43

7.62
EPS Growth(Last Qrtr vs. Same Qrtr Prior Year)

+86.70%

-36.31%

EPS Growth (TTM vs. Prior TTM)

+90.42%

+20.16%

Source: S&P CAPITAL IQ® – 06/26/15

 


Valuation

One of the more straightforward and best methods to value social media companies like Viggle is based on their user base. Recent acquisitions in the social media space provide guidelines for what experts believe is the appropriate valuation for social media companies.

Viggle Valuation

 

The average transaction in the social media space valued each user at $59.52.  The current market price is valuing Viggle’s users at only $7.61 per user. Given the company’s unique product with very strong engagement, patent portfolio, and a management team with a track record of success, the current value per user is extremely low.

Using a conservative figure which values each user at half the average, (or $29.76), there is 291% upside from the current share price of $2.05/share. Accordingly, we have set a 12 month price target of $8/share.


Conclusion

Based on the factors above, we believe VGGL shares are a strong speculative BUY with a one year price target of $8.00/share.


 

Pulmatrix sig.

 


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Disclosure: Our partner TFST Publishing LLC and MicrocapResearch.com received $20,000 from Star Media for our Viggle Inc. reports.  The publishers of MicrocapResearch.com are also long shares of VGGL bought in the open market.

 

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