Audioboom (LSE: BOOM) is a small cap with big ambitions. The company is an app that distributes audio content, allowing users to upload and share their own content free of charge.
And the company has some wealthy backers behind it, including property mogul Nick Candy and UBC Media. Unfortunately, after media group 7Digital acquired UBC Media earlier this year, the company sold its 10.8% stake in the company. However, it has been announced today that Nick Candy has been adding to his position, buying £480,000 worth of shares of the small-cap app developer.
Still, during the past year Audioboom has struggled to win over the market, and year to date the company’s share price has been cut in half. After hitting a high of 16.5p at the beginning of October last year, Audioboom’s shares have slumped by more than 70%.
The question is, can Audioboom return to 16.5p?
Looking at the figures, it’s pretty easy to see that Audioboom is struggling. For the six months to 31 May 2015, the company reported sales of £46k but losses before tax of £3.30m. At this rate, the company is burning through around £2.7m in cash every six months, which doesn’t look good. Indeed, at the end of May the company only had a cash balance of £6.20m.
So, unless sales increase by approximately 6,000% over the next six months, Audioboom will run out of cash at some point during the second half of next year.
Unfortunately, it looks as if investors can rule out a sudden jump in sales. Over the five years from 2010 to 2014, Audioboom’s revenues fell by 44%, and management expects that the company will continue to burn cash “for the foreseeable future”. What’s more, management notes that the group has some heavyweight “direct competitors”, which have deeper pockets and a wider existing user base than Audioboom.
From a financial standpoint, Audioboom looks like it will struggle to survive for the next 24 months. However, the company’s presence is expanding, and the group has some wealthy backers, which could help bankroll its near-term growth.
And for the time being, it seems as if Audioboom’s management is putting user growth ahead of financial performance. User key performance indicators are all heading in the right direction.
The number of users who posted content during the first-half of the year hit 3,000 for the first time and Audioboom’s number of registered users has hit an all-time high of 4m. 200k registered users joined the site during May alone, a new record for the company. Also, during May 550k users downloaded Audioboom’s new iOS and Android apps, another record-breaking figure, taking the total number of app installs to 1.5m.
Audioboom’s management intends to update the market on these KPIs at some point during September.
The bottom line
So, can Audioboom return to 16.5p? It doesn’t look like it can, to me, at least in the short term. The company is concentrating on growth, and until Audioboom can show that it can stand on its own two feet by generating a profit, the market is unlikely to place a high value on the audio provider.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.