Wow, what a week it's been on BIG. I've been itching to get back...

Wow, what a week it's been on BIG. I've been itching to get back on here while being confined as a spectator. With my time off I decided to continue my obsession with BIG. However, I felt like I was reaching the apex so I decided a more unorthodox approach was now needed - I decided to watch every video BIG has ever uploaded on Youtube!

Yes, I actually went through all of the 25,000+ videos BIG has uploaded on Youtube. I'm like that guy Christian Bale played in the movie "The BIG Short" (excuse the pun). This type of dedication is extreme considering I have no financial interest in this company whatsoever. Granted, I didn't actually watch every single video but I did spend 3 days clicking through the massive list. It was an exhausting experience but also very interesting and entertaining at the same time.

First of all there isn't 25,000 unique videos. In fact, it's actually substantially alot less than that. What you'll find is that the majority of uploads are actually the same video uploaded multiple times. Every video has a minimum of 3 different versions. Some videos have 15 or more edited versions. I would estimate that there's only about 4000 unique videos, which is inline with the company's own paid subscriber list, so it makes sense that there is only this many. A rough estimate is to divide by 5, so every 5th video BIG uploads is likely to be unique. I believe this is reason why they like to refer to how many "petabytes" they have rather than how many videos, as it is technically more correct.

The way they create, edit, organise and upload content is very logical and in a way very repetitive. Obviously, uploading so much content requires a certain methodology to hasten the process as much as possible to achieve maximum efficiency. The advantage of this is that it enables a vast inventory to be created in bulk, the disadvantage is that the uniqueness and quality begins to degrade over time.

The basic layout is that there are four different types of videos reflecting the four different packages BIG have on offer. These are Bronze; average of 15 seconds, Silver; average of 30 seconds, Gold; average of 1 min, and Platinum; up to 4 mins. What's interesting, is that BIG seems to always make a Gold, Silver, and Bronze video for each client but will only make a Platinum video if requested. What you'll also notice, is that the Gold, Silver, and Bronze videos are actually made up of the same exact content but are staggered for each plan.

First of all, the Bronze package. It's basically a short 15 second video comprising of mostly establishing shots of the premises and some generic music over the top. It will feature a few panning tripod shots, some close ups and maybe a zoom effect or two. There's so little time to feature anything that this video is pretty much worthless in my opinion.

The Silver package is basically two Bronze packages put together, with maybe some additional close up product shots. For example, if it's a restaurant, they will do a close up of the menu or some food items. It's pretty basic and only slightly better then Bronze. I could see this maybe working well on the clients home page website.

Then there's the Gold package. This is where all the 'magic happens'. This is the most popular, as they recommend this package when ordering. It is also their default package and frankly in my opinion, is the best by far of all the other packages. In this plan you actually get a 'BIG presenter' and it makes all the difference to the video production quality. I've also noticed that Gold videos seem to have the most 'views' so it's safe to assume most clients end up on the Gold package.

The Gold package is basically the Bronze and Silver videos put together with the added benefit of the BIG presenter. They will often start with "Hey it's [insert name] from Big Review TV here, reviewing [insert business name], come on in and take a look". Quite often they will start with an anecdote or something funny to 'hook the viewer' in. They will often tell you how good the product or service is over and over again, and are often seen trying it out themselves. Typically towards the end the business owner will come on and say a few lines, which is basically just edits from a short interview. It will finish back with the presenter signing off with a tagline like "what are you waiting for, come on down to [insert business name] now."

Lastly, the Platinum package is actually pretty rare. Not many clients seem to opt for this premium service. While watching Platinum videos I've noticed that they are mostly high end clients, such as a winery or global fashion store. All Platinum videos have professional production values and it's a significant upgrade from Gold. It will normally feature a mutli camera setup, drone shots, dual day and night shots, long detailed interviews, extensive list of digital effects, punchy editing, and intelligent directing. It's often so good that it feels like you're watching a television show and not a video. It's likely a small 'skeleton crew' film these and not a single cameraman like the other packages.

Having clicked on thousands of these videos there are alot of patterns that begin to emerge. When I first started watching them all it was more entertaining but after a while it became very predictable and boring. It's almost like BIG are mass producing the same video over and over again. The structure and layout is very similar with each video. The video effects are mostly the same too and even the lines/scripts are used over and over again. The only thing that really feels like it's changing is the presenter and the business.

However, some videos are different and are very creative. There's a wedding video for example that was nicely done and looked original. It focused on the emotion of the day rather than the business. It must have been a real wedding as it came off as genuine. Other videos are weird though, sometimes you can see the presenter in the background but they don't feature in the video. It's as if the client has requested they be edited out or something. Sometimes the business itself is very interesting, so it makes the video appealing to watch. One example of this was a 'smashing business', where people pay money to go smash stuff. However, most videos just feature boring restaurants, bars or are a clothing store business.

The take away from all of this is that most of what BIG are producing is basically the same thing over and over again. It is mass produced for the market and comes off as unoriginal with limited creativity. It might look cool with nice production values but the content comes off as "fake" because the reviewers (presenters) aren't really reviewing anything. They are paid actors following a script so it's not a genuine review video 'per se'. Sure, most viewers won't know this when watching but eventually the public is going to get suspicious when all these videos start saturating the market. Maybe BIG can continue to improve the content but with such a limited budget for each video it may not be possible.

The real question is would a business renew this service after a year and make another video? Mmm, I really doubt it after watching this marathon. $400 may seem like a good deal for a video but I think it has limited value for most SMB's as the monthly costs are very expensive. Personally, after watching all these videos, I would rather pay a freelancer to make something unique and genuine. You could for example interview your own real customers while making the production values similar to BIG's. Also, the benefit of this is that you get to keep the ownership licence forever. The bottom line is that the production values on BIG's videos are high but the quality of content is low.

The photo below is a collection of BIG presenters. This is proof that I actually watched all the videos as I know which city each presenter is from. Some presenters feature in hundreds of videos. It's likely they are all from a modelling agency and are perhaps part time actors too. I did notice alot of the videos were produced over the summer of 2016/2017 in Australia. I'm guessing this is because of the extra day light hours for filming. This may explain why there's been slow down over the winter. The videos are normally uploaded in batches from each city, so it's likely the are all edited together when complete. I did notice if the thumbnail contains the presenter it gets alot more views. This following is not the complete list but presenters from 2016/2017:



These are my comments on the 'Preliminary Results' announcement released to the market on the 31st August 2017:

There's been alot of talk about 'deferred revenue' and what it means. I think it's just a fancy word that accountants like to use because our planet revolves around a sun and they like to make it fit perfectly within this time frame for some reason. As long as you look at it consistently it doesn't matter. Yes, there is deferred revenue but only because there is likely to be expenses next financial year relating to this revenue. It might be $1, it might be $100m, they don't know yet, hence why they deferred it until it is known. I doubt there will be much expenses, if at all. An unlikely example is that Youtube could start charging fees for hosting videos.

The most important thing is the margin. Which is basically how much BIG earns for a video versus how much it cost them to produce it, or a better phrase, to outsource. It has varied alot over the last couple of years from a negative value to as high as 35%. There could be a number of reasons for this variation, such as 'the nature of a start up business', operating in a relatively new industry, seasonal change, varying commission on outsourcing fees, and lastly when they enter a new market or country. As time goes by this number will should begin to settle and average out. The latest figures from the last 6 months show that it is currently at 21.5%. What this means is that for every $1 they earn in revenue, they get to keep 21.5 cents as profit.

BIG's operating expenses in 2017 are $8,073,497, so this means that at the current margin they need to earn $37,551,148 in revenue to pay for these costs. Given the already deferred revenue and current growth projections it is likely they will make a profit in FY2018, albeit a likely small profit. However, a small change in margin can drastically alter the results. It is also possible operating expenses could rise but it is also possible profit from other activities could offset the results. It's difficult to give a clear cut answer on these calculation. To support a current valuation of around $200 million, it would assume that profit would be nearing $10m in the short term. Given that, revenue for FY2019 would have to be in the vicinity of approximately $86 million. On current growth projections this is plausible but a long way off from today.

Inconclusion, I believe the stock is fully valued as even accounting for the current growth projections it would still be valued relative to other high growth tech stocks. The challenge here is that it now needs to meet these targets just to support the current share price level. Given the nature of the business I do see "scaling problems", especially with respect to their 'first pillar' revenue model. Their 'second pillar' would need to fill the gap over the short term, however this is something we are not currently seeing in any significant volume. Furthermore I doubt they will be able to maintain margin while also keeping operating expenses under control. I think the best way to describe what has happened over the last 12 months is that the market may have gotten ahead of itself based on the revenue numbers without taking into consideration the nature of the business and the industry it operates in. I maintain my strong sell recommendation.

After thinking about the above, it got me scratching my head, "how does BIG actually make all it's money?"

If there are 3800 paid subscribers, and every single one of them was on the Gold plan, and the Gold plan with the booking fee costs $2,427 per year, then revenue each year would be $9,222,600. However, guidance for Q1 FY18 is $12.5m, which is not only approximately 35% higher but it's being achieved in 1/4 less time.

The only logical answer is that the average revenue per user has increased, which is has, from $2000 in mid 2016 to $7,400 in mid 2017. Therefore, the average user is now subscribing for 3 Gold packages per year. However, after scrolling through all of the videos on Youtube, the vast majority are all small owner operator businesses. Could it be possible each user is subscribing for 3 Gold packages each? I don't think so because I don't recall a single business having subscribed for an additional video package on Youtube.

If you work backwards from $12.5m on an ARPU of $7,400, then they would need 6756 customers to archive this result. However, the user growth has been steady at 90%, so it's likely they will only have approximately 4500 customers. Therefore ARPU would need to increase to $11,1111, which equals about 4.5 Gold packages each. At what point, if it hasn't already, does this all start to breakdown and become meaningless? Obviously, the average user isn't buying almost 5 Gold packages. The only logical explanation is that a very few users are contributing hundreds of thousands of dollars and thus pushing up the average significantly for everyone.

Furthermore, if user growth is steady at 90%, and their pricing plans don't change at all, then why are they always having to update the market on their revenue guidance? If you think about it, the two values are constant, so surely it would be easy to calculate future projections. The reason why they can't is because ARPU is always changing. As this number goes up, it throws out their guidance projections. Even a small change to the ARPU causes total revenue to surge. So, the real question is, why is ARPU going up? Without a reason of why it's going up, it's impossible to come up with a reason why it might go down. If ARPU does drop even slightly it will have a multiplier effective to the downside.

There are two key metrics for this business, ARPU and margin. The margin is always being squeezed by a variety of different market forces. The only real solution is to find new clients at an exponentially higher rate. Then you have ARPU, which is always being suppressed by the large amount of low value clients constantly being added, which has to be offset at an even faster rate to make up for the difference. Sooner or later, these two metrics will reach an event horizon where they are unable to withstand the aggressive growth projections. In order to maintain growth and therefore the shareprice, BIG needs to exponentially find higher value clients, something which it is unlikely to achieve in Australia anymore. Given the lack of revenue detail on the international expansion it's unlikely going to make up for it.

My comments on the US Update:

If you look between the lines of the 'U.S. Update' announcement on the 5th of September 2017, there are a number of holes that I believe the company needs to address and be more transparent about.

They claim to have filmed 1,200 businesses from the USA but most of the videos have not been uploaded on Youtube as of yet. I think what has happened is that they have just finished filming a large bulk of these recently as the Northern Hemisphere summer has just ended. These are probably all going to be mass edited together to save costs and are likely going to be continually uploaded on Youtube in the coming weeks and months. My guess is that these will consist of mostly low value clients as the high value clients would have received priority filming and not be subjected to this bulk seasonal add on.

The seasonal variation is important as it's more efficient to film in the summer. I believe it could be a very significant factor for a number of reasons, such as extra day light hours for filming, more casual staff available, less likely to rain thus ruining establishing shots, easier transport between destinations, less likely to have an accident on set, and less overall equipment needed. The advantages to filming in the summer are huge. Also, most clients would prefer a summer time slot too, mainly for aesthetic reasons but also because alot of businesses only operate in the summer. I believe fundamentally this is why BIG have updated the market now - as summer has just finished. It's a very timely announcement and considering that they have been "established" in the USA and other destinations for a while now it's also very bland on detail. I wouldn't be surprised to see weakness over the coming months as winter begins to bite, but then the company will use the domestic figures to 'cover the evidence' as summer in Australia begins to ramp up.

What's interesting is that they claim $6 million in contract revenue while there is only 1,200 businesses. This equals $5000 ARPU, unless of course there are other businesses besides the 1,200 who have also signed up. However, from my understanding clients only commit to the contract after the video has been produced and shown to the client (that might need clarifying). The $5000 is inline with the ARPU in Australia so it's probably likely this figure is correct. If so, then it's the same situation as I explained above, where a small number of businesses are providing the majority of the revenue. Although in this case it's slightly less so perhaps this suggests the up selling conversion rates aren't as strong.

The removing of the upfront payment in my opinion is a huge sign of weakness. That fact that they some how spun this into a positive is a concern and demonstrates this company's manner of communication. This will effect margin and likely cause problems with their outsourced contracts. The upfront payment acts as an insurance so to speak and BIG will likely take on extra risk for this. How this will effecting their business going forward I don't know but I believe competition is so strong in the USA that I would expect further subsides over time and not less going forward.

Lastly, the only graph they show is an operating cost graph, which tells the market very little. What is needed is more detailed information on margin and ARPU. The operating costs are separate and aren't really important. I'm worried that margin is so low that they are trying to justify it by having small overheads. It's as if they know bad news is coming so they're preparing for it now. Also this statement here, "currently in dialogue with a number of significant US partners" has been going on for a while now and doesn't seem like much is happening. I just don't see the same success being replicated in the USA as in Australia.

Overall, in my opinion, it's not much of an update besides the headline figure, "US$6m". Again, it's the same rhetoric where the numbers don't tell the full story and the market gets ahead of itself. I don't mean to be so negative on this company and I know it's not easy selling anything for $6m but if it cost you that much to sell it then it defeats the purpose. I strongly believe this company will be exposed for what it is, a "revenue enigma".

A lot of people here are scratching their heads wondering why the stock isn't alot higher. The funny thing is, is that they are right, it should be a lot higher based on the previous announcements. However, the market is slowing figuring this company out, and as the smarter ones start to leave, demand for the stock is dropping. Sooner or later the music is going to stop.