I thought I saw some potential in this stock as a deep value play. However some digging has uncovered possible red flags.
I would be interested to hear others thoughts on this!
Web Traffic
Entertainment.com.au web traffic is on the decline from a high in June 2020. Two possible factors at play here:
1. As the economy improves and returns to some post-covid normality, consumers are less focused on saving a penny so aren't looking for deals sites. However, as INP is a potential COVID turnaround story you would hope that web traffic would continue to grow as their key markets of hospitality and entertainment begin to open up. The web traffic data suggests the opposite is occurring.
2. It also may be the case that the transition of their original entertainment book subscribers to digital subscribers has been completed (book subscribers would have been encouraged to visit the website to learn how to download the app & subscribe to the digital offering). Thus the initial growth of web traffic from Sept 2019 to June 2020 was likely the rollover of subscribers, and traffic numbers are just now stabilising.
App Update
As part of their digital transformation, a major update was made to the Entertainment ANZ app on the 20th Feb 2021 (Version 10.0.2). Prior to this update the app in both the Apple App Store and Google Play Store had average rating of around 2.5/5. Since the app update this rating has declined with hundreds of new 1-star reviews. You can see this in the comparison below from All Versions to Current Version. The general complaint is that the user friendliness of the app is terrible. For a company undergoing a digital transformation, this isn't what you want to see. These reviews suggest they are going to have a really hard time not only attracting new subscribers, but retaining existing subscribers with such a bad user experience. A negative signal for future revenue growth.
In the December 4C they said the first version of the app was released to a test group of users in Beta, which included employees and a test group of members. So either they got misleading data from the beta testing, or the feedback was average but they decided to continue with the roll out anyway (sunk costs). Management have indicated that their sales cycle is from February to June, so I expect that they may have a lot of existing subscribers not renewing, which could result in disappointing quarterly numbers for Q4 FY21 and Q1 FY22. They may be able to quickly return the app to the previous version to stem some of the bleeding.
Before (All Versions)
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After (Current Version)
Some of the negative reviews
"After a year of limited use due to covid and now this, renewing is unlikely."Was on the fence about renewing, but now won't be."
"I doubt I'll be buying the membership again if it doesn't go back to the old version."
"This app is unusable and I'll not be repeating any entertainment book purchases"
I will continue to watch this stock as I think there is potential for a transformation, however there appears to be some significant initial stumbling blocks, and I wouldn't considering upgrading to a buy until they can reverse the declining revenues, and stem the cash burn.
