Small Caps | Jun 27 2016
This story features LINIUS TECHNOLOGIES LIMITED. For more info SHARE ANALYSIS: LNU
-Ability to personalise video advertising
-Partnering with DigiSoft
-Price structure to be finalised
By Eva Brocklehurst
Newly re-listed Linius Technologies ((LNU)), formerly Firestrike Resources, has developed a technology that has far-reaching implications for the video streaming market, particularly for personalised TV advertising.
The company has a patented technology which enables video files to be played out on any device anywhere on the internet without the need for content providers to store copies in different formats, languages and subtitles. The video virtualisation allows for audio tracks, subtitles and advertising to be added as the video is being played.
TMT Analytics maintains the company's co-operation with DigiSoft is a major endorsement of potential. Cost savings are expected to be substantial in terms of storage and transcoding, which the broker asserts could be up to as much as 80%. Moreover, content providers will be able to personalise the offering to the individual viewer, based on known preferences. This will mean the value of advertising time is increased.
The company aims to roll out its commercial products late this year targeting the video processing industry in the first instance, in terms of transcoding, content delivery networks (CDN) and personalised ads. The price structure is being finalised along with the sales model.
So far, TMT Analytics has calculated a discounted cash flow-derived valuation of 28c, providing a valuation rather than a price target at this stage. Still, considering substantial potential upside in the share price, and assuming successful monetisation of the technology, the broker initiates coverage with a Buy rating.
The company is likely to require additional funding to facilitate a full-scale rollout of its technology, for marketing and additional developers, the broker contends, and unfamiliarity with the technology and integration into existing work flows may limit adoption and acceptance by some customers. This is why partnering with established players may expedite the commercial rollout.
Catalysts for the near to medium term include the development of showcases which will enable Linius Technologies to convert the interest received from industry players into concrete agreements. The broker expects channel partners will be signed ahead of the actual commercial rollout.
Additionally, the company should be able to attract multiple enterprise customers directly rather than through channel partners closer to the launch date, allowing for higher revenue per customer in the absence of revenue sharing in these situations.
Simply put, the technology starts by asking a question about which device is actually requesting a play-out of a particular piece of content. The variables are then matched to include specifics of the device, the media player, the subtitle language, if any, and viewer specific preferences. This is then compiled into the actual feed.
TMT Analytics considers the viewer-specific advertising feature facilitated by the technology has potential to be a game changer, as this level of specialisation is only seen with online advertising. On average, space in such a model is almost three times more valuable to advertisers than generic advertising space on TV.
Given the company addresses a well-established industry with incumbent players and structures and will mainly be selling through channel partners in revenue sharing agreements, this reduces the need to build up a large sales force early on. DigiSoft is the first channel partner but TMT Analytics expects up to nine to be signed to address the initial three market segments in the medium term.
The broker also observes the CDNs are growing strongly, resulting in a market that is expanding towards US$12.8bn in 2020, from around US$5bn in 2015. While video accounted for 64% of the internet traffic in 2014, Cisco estimates this will rise to 80% by 2019.
TMT Analytics models Linius Technologies revenues from the CDN market in a similar way to the transcoding market, ie a small but growing market share which is defining customer costs that are expected to be reduced by 80%. These cost savings form the basis for a 12.5% licence fee, of which the company's re-seller takes 30%.
Hence revenues are projected at $5.6m in 2017, growing to $14.6m in 2018 and $42.6m by 2020. Linius Technologies is projected to make a maiden profit in 2018 of $2.8m, growing to $14.2m by 2020. The broker emphasises that this is a work in progress and modelling still needs to be finalised, which is expected towards the end of 2016.
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