Buying 7Digital shares: the good, the bad and the questionable

Use of TikTok rival Triller by Donald Trump has sent investors buying into key partner 7Digital shares as hopes rise for the AIM-listed music catalogue provider following a troubled history.

Following yesterday’s rise of 200 percent, 7Digital themselves issued a somewhat cunning statement highlighting that it knows no reason for the rise in share price other than Donald Trump uses Triller and that it has a contract to supply Triller with its music catalogue. On one hand this raises questions about the uplift directly for 7Digital, but on the other, it teases that it could benefit from being such a key provider to a hugely popular app endorsed by the US president.

Here we look at some quick-facts on the good, the bad and the questionable when considering whether to invest in 7Digital (7DIG):

The Good

  • Triller! Donald Trump has an account on Triller and uses Triller – reports are that Triller is seeing huge numbers join the app as a ban on TikTok looms in the US and other countries potentially.
  • 7Digital has signed a contract with Triller – while it already had a contact in place, the contract suggests there is a fixed feed plus a usage- based element involved. Now clearly, more users = more music played = more money for 7Digital.
  • Within its enterprise model, it told investors last year that “even small penetration in large customer bases drives significant revenue”. This all supports the idea that a surge in downloads for Triller will see it increase its revenues.
  • The world of technology demands higher multiples – being an integral part to a much-talked about app when the likes of Microsoft are reportedly in talks to acquire a rival like TikTok can only be a good thing.

The Bad

  • Without raising funds last year by 31 July 2019, it would have been in administration.
  • It lost a major client in MediaMarket Saturn and accepted a 4m euro settlement last year – taking away a big chunk of its recurring revenues – so there will be a gap that needs to be filled.
  • Given it was on the verge of administration last year – its accounts raise a few questions. Historically as revenues have gone up, its administrative expenses have also ballooned, giving it heavy losses. In 2018 revenues were at £20m but its administrative expenses were at £27m – needless to say a heavy loss per share of 2.97p per share ensued.

The Questionable

  • It had an existing contact with Triller since 2018 – its unaudited interims for period ending 30 June 2019 shown a decline in revenue.
  • The question remains how much is 7Digital’s uplift from its agreement with Triller – does it need billions rather than millions of new users to really move the dial, despite it appearing to have a usage based fee too. And importantly, can it generate economies of scale.
  • 7Digital has always had big clients, in fact TikTok was cited as one of them by the company in 2019 – yes TikTok alongside Triller, BBC ,Universal Music Group among others. Historically, it struggles to be profitable.

Its 2019 full-year results are due to be announced next month.

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