MBE historically generated most of its revenue via Direct Carrier Billing (DCB) based on subscriptions to its mobile phone games business ‘No Limits Games’, which is a portal of over 100 low quality games.
Essentially the customer lifecycle is as follows: new user ‘subscribes’ to the portfol via a ‘low touch point’ subscription mechanism, their mobile bill arrives a few weeks later showing they’ve agreed to pay for a portal they don’t use (the Direct Carrier Billing part), then they promptly cease the subscription. This is reflected in MBE’s very short average customer lifetime. MBE tries to manage the ‘customer lifetime value’ by reducing the periodic payments so as fly under the radar and not annoy customers enough for them to go through the hassle of unsubscribing.
Driven by the DCB segment, MBE’s revenues increased 5x between FY13 and FY16, however free cash flows were close to naught over the period due to increasing receivables and capitalised software costs.
More recently, MBE’s other business segement, Performance Marketing, became the main driver and now exceeds the DCB business’s revenues and earnings. This segment is currently demonstrating growth.
It is difficult to see where this business will be in the years to come. Clearly MBE has decent mobile marketing capability given they were able to generate $33m revenues last year by marketing a less-than-useful product like No Limits Games. Performance Marketing may in fact prove to be a sustainable business. We’ll wait and see.
MBE Price at posting:
7.5¢ Sentiment: Buy Disclosure: Held
