This is an article from one of the guys at ozestock/ASC forum.If you want to see the JIVE version you must visit the website.
Idiot analyst. I don't think this guy has even figured out how this business generates its revenue or income.
Firstly, he doesn't even know the difference between receipts from customers (Cash flow item) are revenues (Profit and Loss item - receipts from customers plus receivables). How can anyone call themselves an analyst if they cannot even make a sensible assessment of cash flows versus sales projections.
The margin is largely irrelevant as well as the only variable cost in this business is the cost of customer churn. The main content and administration costs are around $10m per annum.
If you have a look at the cash flow statement they have a line saying "other working capital" For the quarter this was $33.3m and $81m for the full year. This is the variable cost of churn.
The churn costdoes not reduce from efficiencies gained within the organisation (i.e. cost cutting) but rather from greater customer retention which results in an increase in revenues not a decrease in costs.
The Other Working Capital cost is the customer acquisition cost which would only decrease if the company were able to re-negotiate web master costs down. I believe the Company actually increased these last year and that is what has created the massive increase in customer numbers.
The trick from now on is not cutting these costs but a combination of:
Increasing content to keep customers as subscibers for a longer period. Consider this example.
Subscibers 380,000 Average revenue $US25 per month (average of $9 / $19 and $49 pachages) ASC probably gets an average $A250 of revenue off each subsciber(keeping the subscibers for 4 months) or on 380,000 customers (churned 3 times a year) $285m revenues.
To get these subscribers ASC has paid (Based on the cash flows presented) c$A180 or on 380,000 subsribers $205m (churned 3 times per year)
Lets assume that ASC, by increasing quality and amout of content is able to keep the subscibers for an average 5 months. The acquisition cost probably stays the same but number of net new subscribers accelerates but more importantly the revenue (and free cash flow) has increased by $US25 per subscriber - or on 380,000 subscribers by $18 million dollars. This drops right to the pre-tax cash flow line.
Cost savings do not add margin to this business: SPENDING MORE MONEY ON QUALITY CONTENT CAN ADD SIGNIFICANT VALUE TO THE CASH FLOWS AS THE CUSTOMER RETENTION RATE INCREASES.
Even if the fixed costs were reduced by 20% the savings would only be $2m per annum - before tax - certainly not the magnitude of margin growth proposed by the Shaw analyst or that presented by the company.
I hope this helps explain how the cash flows work for ASC or any subscription based business.
The leverage explained above is why I own this stock!
Simon
ASC Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
