The following analysis takes the excellent post by @Bustus (Post #: 55858877 on 6th September) into a bit more detail, looking at 5 plausible Scenarios. Thank you @Bustus for the idea. Also thanks to @Access2020, @StealthInvest and @Veecat for their analysis and information which has helped me to fine-tune my own analysis. (I just noticed today's detailed analysis by @StealthInvest which I have not yet digested - looking forward to it).
Beam’s 31 May 2021 ASX presentation, slide 19, now allows for a more detailed and accurate analysis to be done relating to Beam’s likely level of Operating Profit from Royalty payments from the JV based on subscriptions in Beam’s territories. This slide states:
- “15K subscribers forecasted across Beam’s territories by end of FY23.”
- “15KsubscribersinBeam’sterritorieswillgenerate~$1.5m-$1.8m*inoperatingprofitayearforBeam.”
- “Profitmarginincreasesexponentiallyasmoresubscribersareadded duetostrongoperatingleverage.”
- “TotalRevenuefromlowestcostplan is$29.09(ex-GST)amonthX12monthsX15ksubs=$5.2m.”
- “Excludes additional upside from Value Added Services and other markets.”
The following Scenarios are Analysed in Detail in the Table below:
Scenario 1:
Uses Beam’s statements about subscriber numbers in its Territories, ARPU and the mid-point of Beam’s Operating Profit. The other values in Scenario 1 are calculated from these values, with the only assumption being the JV Gross Profit Margin being 75% (which does not matter so much as Beam has disclosed its expectation for its Operating Profit from Royalties).
Scenario2:
Uses Beam’s disclosure in the same 31 May 2021 presentation of the latest ARPU in Australia of $45, while keeping Subscribers unchanged. IMO, this is more likely to be correct than Beam’s very conservative ARPU of $29.09 (ex-GST) for its operating profit expectation, as ARPU would be unlikely to decline from here given new value-added service recently added. This represents $40.91 (ex-GST), which is the basis for Scenario 2 in the Table below. The main difference with this analysis is that Beam’s Operating Profit is calculated using the same JV GP Margin of 75%, as cost of sales in the JV is likely to be proportional to Revenue. It also assumes that Beam’s operating costs are fixed, so will be the same of for Scenario 1. Beam’s new Operating Profit then simply comes out in the wash.
Scenario3:
Is based on my expectation for a further increase in ARPU by June 2023 to $50 ($45.45 ex-GST). IMO, subscribers are more likely on average to increase usage rather than decrease, to trade up onto a higher plan rather than to go down to a lower plan, and some will also take up add-on options such as location sharing with contacts. The approach to calculating Beam’s Operating Profit is the same as for Scenario 2.
Scenario4:
Includes a 20% lower estimate of 12,000 subscribers in Beam’s territories by June 2023, but includes my higher estimate for ARPU of $45.45 (ex-GST), which I think is more likely. The approach to calculating Beam’s Operating Profit is the same as for Scenario 2.
Scenario5:
This assumes a 20% higher estimate of subscribers in Beam’s territories of 18,000, and also includes my higher estimate for ARPU of $45.45 (ex-GST). The approach to calculating Beam’s Operating Profit is the same as for Scenario 2.
My more detailed comments for those interested:
- Operating profit is AFTER deduction of Beam’s operating expenses such as Sales and Marketing. I have used the mid-point of Beam’s expectation in Scenario 1.
- The Royalty paid to Beam by the JV will be much higher than Beam’s expected operating profit, as Beam’s operating costs must be subtracted from the royalty payment before determining Beam’s operating profit.
- IMO, there will be no cost of sales for Beam on the Royalty, as these costs are borne by the JV. So Beam’s Gross Margin on the Royalty is 100%.
- In the following Table, I have made an estimate of the Royalty based on assuming the JV Gross Margin is 75% of subscription revenue. If this is different it makes no difference to what Beam expects its operating profit to be in Scenario 1.
- All this allows us to calculate Beam’s Operating Margin, since Beam has provided us with their estimate of operating profit for Scenario 1.
- For all other Scenarios, Beam’s operating margin is approximate only as this will be affected by the actual amount of the royalty payment, which in turn will be affected by the JV actual Gross Margin.
- I have also assumed that Beam’s operating costs are fixed (e.g. Sales & Marketing and Administration costs won’t change if the Royalty is higher), so Beam’s EBITDA from the Royalties will go up rapidly as Royalties rise (Beam said as much in their presentation).
| Projections for Beam Operating Profit Run-Rate from Royalties (Beam Territories) as at June 2023 |
| Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | Scenario 5 |
| Subscribers | 15000 | 15000 | 15000 | 12000 | 18000 |
| ARPU (ex-GST) | $29.09 | $40.91 | $45.45 | $45.45 | $45.45 |
| JV Total Revenue pa | $5,236,200 | $7,363,800 | $8,181,000 | $6,544,800 | $9,817,200 |
| JV Cost of Sales (25% of Revenue) | $1,309,050 | $1,840,950 | $2,045,250 | $1,636,200 | $2,454,300 |
| JV Gross Profit (75% GP Margin) | $3,927,150 | $5,522,850 | $6,135,750 | $4,908,600 | $7,362,900 |
| Royalty Payments to Beam (70% of JV GP) | $2,749,005 | $3,865,995 | $4,295,025 | $3,436,020 | $5,154,030 |
| Beam Operating Costs | $1,099,005 | $1,099,005 | $1,099,005 | $1,099,005 | $1,099,005 |
| Beam Operating Profit | $1,650,000 | $2,766,990 | $3,196,020 | $2,337,015 | $4,055,025 |
| Beam Operating Profit Margin on Royalty | 60% | 72% | 74% | 68% | 79% |
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| Yellow highlighted values have been provided by Beam |
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(20min delay)