Fundamentals and Business Related Activities

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  • #7653
    admin
    Keymaster
    Topic Author

    This new thread will be used to discuss fundamentals and business related activities. As all the important information is getting diluted in general discussions thread.

    Price should not be discussed here, please use the technical discussion thread for that purpose. For anything other please continue using the general discussion thread.

    0
    #7611
    aindia
    Registered Boarder

    The Future of Media: Closed Ecosystems White Paper
    JUL 06, 2020
    The media landscape is undergoing a generational shift, as open-web advertising rapidly moves into logged-in environments built on premium content. These “Closed Ecosystems” — which include digital and commerce platforms, social media, streaming video and audio as well as connected TV services and mobile apps — are where consumers consume the vast majority of media, and where brands spend the vast majority of their budgets. The concentration of dollars and attention within Closed Ecosystems has been happening for some time, and now the pace is rapidly accelerating. Soon, Closed Ecosystems will be the only way for brands to truly connect with customers.

    Operating in this reality presents brands with new challenges: namely, the challenge of delivering a consistent message across these fragmented environments. Brands need to match the relevancy and personalization that consumers have come to expect in an era where algorithms curate highly individualized media experiences in every content modality, beginning with social but now extending to audio and video. Doing that requires the facility to operate between these Closed Ecosystems with fluency and ease.

    #7659
    Saul Goodman
    Registered Boarder

    1>

    We know that the company pays publishers every month and the advertisers pay the company after 3-4 months. The following are my assumptions/guesses and anyone can correct me if I’m wrong.

    Assumption 1

    The company buys media space from publishers every month, let’s assume they buy for Rs.100 (costs)every month from Jan to Dec and every month the profits are Rs.15 (and the revenue is Rs.115). Now, if they buy in January then advertisers pay that amount after 4 months .i.e. in May. So for February they get paid in June and for March it’s in July and so on and finally for December they get paid in April next year.

    The total amount spent (total costs) to buy media space is Rs.1200 (Rs.100*12) and the total money (revenue) they get from advertisers is Rs.1380 (Rs.115*12) and the profits are Rs.180 (Rs.15*12).

    Now, even though the profits are Rs.180, they didn’t get that money at once and also I’ve assumed the amount paid to publishers as constant and in reality it may vary depending on the situation i.e. the publishers may demand more than Rs.100 in some months and that makes more expenses and profits will be less.

    #7660
    Saul Goodman
    Registered Boarder

    2>

    Assumption 2

    The company has the right to buy media space from a publisher for a year for Rs.1200 and the agreement is that the company will pay the publisher Rs.100 every month and that amount will not change. Now, the advertisers will pay them after 4 months i.e. advertisers will pay Rs.345(1380/4) in May, then again in September, and again in January next year and finally the last payment in May.

    The profit is Rs.180 but again the company didn’t get all that amount one time. They only get Rs.45 as profits after every 4 months which may be used to buy media space and to pay for expenses.

    Both the above assumptions are very simple. The whole operation is very complex. The amount that BCG pays to the publishers may vary every month. We all know that BCG does well in 1st and 3rd quarters and that’s because the holiday season in USA is during that time and the advertisers will spend more. In other months the advertisers may not spend more but BCG still has to pay publishers Rs.1200 as per agreement.

    The profits may vary depending on various factors. The costs won’t be the same every month and to sign up new publishers they may have to spend the profits there and also they’ll have other expenses to take care of.

    Looking at all these, it’s not very easy to get free cash flow and if they spend more profit money on buying more media then that amount will be stuck in receivables and BCG will have to wait 4 months to receive it and the cycle goes on. And also because of technology changes, inflation etc the profits may not increase. However, if they get the extra money (from LOC), they can invest large amounts at once and they can improve the cash flow, instead of putting all the profit into business again, they can use the profits for other things which may improve the operations i.e. they can buy other companies.

    #7661
    dileepvn
    Registered Boarder

    “Sundar Pichai says Google to invest Rs 75,000 crore in India over next 5-7 years”

    https://www.moneycontrol.com/news/business/sundar-pichai-says-google-to-invest-rs-75000-crore-in-india-over-next-5-7-years-5541381.html

    Pichai said he wanted India not only to benefit from next wave of innovation but to lead it. Google, he said, will focus on the following four areas of investment;

    – affordable access to Indian languages

    – building new products and services unique to India

    – empowering business, and

    – leveraging artificial intelligence (AI) in health, education and agriculture

    Doesn’t it relate to Brightcoms growth prospect in India as well, in the next few years?

    Earlier, SKR had commented during the conference call regarding AI: “And we are already working in agriculture right now. We’re working in e-commerce. We are also working in medical. We’re working with a very large player in medical with — in terms of 1 of the largest internet companies in the world for their colonoscopy analysis.”

    Sundar Pichai being an alumnus of IIT Kgp, which is SKRs alma mater too, any chance of potential tie-ups with Google in the future?
    Pichai has stated that they are looking at equity investments as well. Can SKR and Brightcom capitalize on this opportuniy (if it is one)?

    #7665
    odysee
    Registered Boarder

    @dileepvn, how many fingers shall I cross? Possibly all! It would be terrific if some form of business partnership were to develop between BCG and Google. Some form of client/competitor status already exists but a newer development at a different level would be truly exciting.

    #7667
    dileepvn
    Registered Boarder

    Let’s hope SKR takes note. He should know better. I was thinking SKR might know Pichai personally as well. I remember SKR mentioning about Pichai in one of his interviews. Let’s hope for the best. In any case, Google, being a highly data driven company, looking into the digital sector in India tells us a lot about the growth prospects we have here in the sector. Brightcom should definitely benefit, either way.

    6+
    #7791
    admin
    Keymaster
    Topic Author

    #7792
    Saul Goodman
    Registered Boarder

    @Admin, thank you for sharing this article, it’s very informative.

    Reading this article we can conclude that the receivable problems are not with BCG alone and all the ad tech companies experience this.

    Mr.Reddy has been telling us about this problem since day one but people didn’t understand the company’s problem. I have also repeatedly mentioned in my posts that this is not just BCG’s problems and the whole industry experiences this. The article mentions that Google also has this problem but they can withstand it because of their size.

    This is the reason why the revenues and profits aren’t increasing all these years but the good part with BCG is that even in spite of having this problem BCG managed to pay off almost all the debt and also it grew it’s business and improved it’s operating cash flow.

    Getting the line of credit (LOC) is very important and as the company gets bigger, the problems with receivables will ease. Business wise good times are ahead.

    #7797
    Saul Goodman
    Registered Boarder

    @odysee (#7796), Only the smaller ad tech companies have this problem and the problems will ease as the company gets bigger. You can see that with Criteo, they don’t have receivable problems.

    Except Google, Facebook, AOL and few others, most of the ad tech companies are very small and also most are private. Few years back it used to be very hard for private companies to get funding and maybe that’s why Mr.Reddy decided to take the company public as public companies can get easy access to funds.

    If a company is rightly valued, the best option is to raise funds through equity (issuing more shares) as you don’t have to pay interest but the problem is our markets never gave BCG the right valuation it deserves and this made raising funds very difficult.

    The other option is to go for a line of credit and particularly receivable financing (which BCG is going for) where a third party will take care of the receivables but they charge you a fee. This is a better option than going for loans with banks, with LOC, you don’t have to take the loans at once and you can take it whenever you want.

    BCG does well in 1st and 3rd quarters, so they can take the first installment of the LOC in the 1st quarter and get more profits (and free cash) and use that free cash for the 2nd quarter and later they can take the second installment in the 3rd quarter and on and on.

    As BCG gets bigger and hopefully if BCG gets the right valuation then BCG need not take LOC and it can grow by using it’s own free cash or by issuing more shares without diluting much.

    #7798
    VALUEBUYER001
    Registered Boarder

    Thanks dear Saul Goodman Ji you were not sleeping even@ 2.00 a.m and write detailed information everytime.you please take care of your health.with it’s present credit history the chance of getting loan in india is very very little and doubtful. Hope BCG gets loc in USA very soon to get rid of the troubles and achieve growth and other objectives

    #7801
    Logicalspeak
    Blocked User

    Please refer my message #7744 & #7745 in general discussion thread and the article posted in #7791 by Admn,

    The working capital to the extent of present revenue is available with the company.EVERY YEAR THE NET PROFIT REPORTED LESS the increase in receivable since preveous year is also available with the company for each year.

    Now, the question comes whether all the profit of a year is to be additionally reinvested back in business or can it be less than that, so as to have liquid cash balance and to accumulate liquid free cash balance for different other purposes.

    The company has not reinvested whole of the net profit of last say six or seven years. If fully reinvested back all the profit in digital ad business, how they have invested in their other failed ventures, and other presently going on ventures and other stated intangible assets under development , all without any clarity.

    Thus, the company have to calibrate, how much liquid cash out of the net profit of each year should be reinvested back in business and how much liquid cash should be retained as free cash flow for dubt repayment and divident payment or buy back etc.The company have to calibrate it by proper planning as to how many percentage of each yeat net profit should be retained as free cash balance and how much should be reinvested.

    Free cash flow is not a spontaneuos magic like Angel which appear suddenly without any notice.

    I have illustrated clearly in my #7744 & #7745 , that roughly 2000 crore net profit reported in last around six years. Receivable six years back was 700 crore and after about six years it increased to around 950 crore. Thus increase in recievable during last about six years is only about 250 Crores.

    Thus company had in its hand, hard cash of 2000 – 250 = 1750 Crores approximately and absolutely for its discretionary spending during the last about six years. All other talks are nonsense.

    Revenue as per my earlier post should have been increased to approx. 6000 crore had company reinvested whole of it in digital ad tech business with 120 days gestation period or to say 3 times yearly capital rotation cycle.

    Thus company definitely channelised major portion of money for other purpose. What are those areas and where is the revenue and profit from that should be explained by company.

    The article posted by Admn in #7791 is nothing new and CEO had kept telling since May years that they recieve back the money spend only in 3 to 4 months and the same is reasonably reflected in their number of recievable days, which were more or less same or some times improved also. Therefore there is no doubt there. The same will be helpful for the people who had no clarity till now. Otherwise the same is of no importance as the same was mentioed and reflected in their recievables of all preveous years.

    5+
    #7802
    lycos.rags.to.riches
    Registered Boarder

    @logicalspeak, basically BCG needs a excellent CFO who can do solid finance planning – tracking cash flow and do capital allocation based on financial predictions. BCG lagging behind in this, Hope their consolidated entity has a better CFO.

    #7803
    Saul Goodman
    Registered Boarder

    @logicalspeak, we really can’t judge anything just by guessing, you should understand that every business is different from the rest. I’m not saying you are right or wrong but all of us don’t know the nature of the business that BCG is in (at least we don’t know about the day to day activities).

    Theory is different from practicals and if you say that the revenues could’ve grown to Rs.6000 crores then please give an explanation with examples (explaining day to day activities).

    Business is not pure science. In science if you put “x” with “y” it’ll give “z” but in business that’s not the case. In business we can’t get straight forward solutions for everything. If any company could increase their revenues 2-3 times every 3-5 years then doing business wouldn’t be so tough at all and each and every person would’ve started their own company but that’s not the case.

    Also understand that the company never got Rs.2000 at once. As I’ve mentioned before there’s a big difference between investing Rs.2000 crores at once and investing Rs.2 crs or Rs.20 crores. And the Rs.400 odd crores profits, they are not getting it all at once.

    Everything that they invest may not turn out to be profitable. Many startups receive thousands of crores every year and yet they are still in losses. Amazon’s first profit was in 2017 or 2018 and that was because of their cloud business and not because of e-commerce business. Amazon could increase their revenue and cash flows because of easier access to funds.

    InMobi, which is a competitor to BCG has received more than $320 million (Rs.2400 crs) from various investors but still InMobi is in losses.

    This is not to say that we shouldn’t question the management but our questions or reasons should be realistic. If you give an explanation with facts then I’ll change my views/opinions in a second.

    The company has nothing to hide, if they really did hide few things then they would have done it for 1 or 2 years but they can’t do it consistently every year when there’s so much scrutiny. It’s easy for us to blame them without knowing facts. Stock price or valuation wise the CEO has not acted quickly but business wise why would he hide facts? What will he get doing that? He’s the one who will lose his reputation if he gives false information.

    And the digital marketing team of BCG has so many talented people and why would they voluntarily invest in business that doesn’t grow or give good returns? No one does that risking their own reputation.

    The company has genuine cash flow problems that we are not understanding. Blaming them without facts won’t look good on us. We should ask about this in the next conference call or in the AGM or we can request the CEO to have a conference call specifically to ask questions about the business and operations.

    #7804
    VALUEBUYER001
    Registered Boarder

    Thanks dear Saul Goodman Ji for your explanation.with closure of bank loan of Axis Bank and oak exit momentum may pick up in price of share let’s hope for the Best

    #7808
    admin
    Keymaster
    Topic Author

    @Logicalspeak – The article is not something new but it is coming from a authentic source which validates that the issue of receivables and net cash flow is industry wide problem and not something specific to BCG. Apart from that the article also has many things which corroborate what Saul has shared before. Let us appreciate him for sharing all knowledge with us.

    4+
    #7816
    Logicalspeak
    Blocked User

    Dear Saul and Admn,

    Let us not further argue on the said messages of mine and Saul or anybody. Let the reader’s read both and come to their own conclusion, as further elaboration will make more confusion with the reader.

    BUT ONE THING IS CERTAIN, that the value errosion happended over years due to various and obvious reasons was enormous and it is only natural to catch up those eroded value to its intrinsic value particularly because, now all the issues and problems of earlier years are vanishing or getting solved one by one and in most of those issues only management’s official announcements are pending. I think on this point everybody will have concurrence of opinion.

    All the best to all the long term investors.

    #7821
    Saul Goodman
    Registered Boarder

    1>


    @George
    (#7819), you can’t compare Pressman Advertising with BCG. The comparison doesn’t make sense at all. Please do proper research before writing something and always backup your statements with facts. Don’t get me wrong for saying this, but when Mr.Reddy talks about business I’ll always trust him more than I trust someone like you.

    If you have knowledge about the day to day activities of BCG then please share it with us and explain how BCG got Rs.2000 crores to invest at once and tell us how they could have used it to improve their revenue and profit. Also please explain us about the whole Ad Tech industry, everyone will appreciate you if you do that.

    The CEO has been telling us that they have receivable problems from day one, he hasn’t given other “excuses”, you can see some CEOs always change their “excuses” and they come up with new reasons but as far I know Mr.Reddy has not done anything like that.

    Stock market or valuation wise he has given many reasons and most of them are valid reasons, I know he should’ve acted quickly on many issues but unfortunately he didn’t. We have to understand that there were many issues to sort out back then but now most of those issues are getting cleared and stock price or valuation wise we may see better days ahead (hopefully).

    Instead of comparing BCG with Pressman, let us compare it with Criteo.

    2+
    #7824
    Saul Goodman
    Registered Boarder

    2>
    CRITEO

    2016
    Revenue – $1.8B
    OPM – $121M
    Profit – $ 87M
    EPS – $ 1.3
    Acc.Rec – $397M
    Acc.Pay – $365M

    2019
    Revenue – $2.26B
    OPM – $ 141M
    Profit – $ 95M
    EPS – $ 1.41
    Acc.Rec – $ 481M
    Acc.Pay – $ 390M

    Since Criteo’s FY is Jan-Dec, I don’t have the information about 2020 financials.
    In 4 years,
    Revenue growth – 25 %
    Profit growth – 9.1%

    BRIGHTCOM GROUP

    2016
    Revenue – Rs.2260Cr
    OPM – Rs.600Cr
    Profit – Rs.405Cr
    EPS – Rs.8.5
    Acc.Rec – Rs.729Cr
    Acc.Pay – Rs.89Cr

    2020
    Revenue – Rs.2706Cr
    OPM – Rs.617Cr
    Profit – Rs.440Cr
    EPS – Rs.9.24
    Acc.Rec – Rs.947Cr
    Acc.pay – Rs.101Cr

    In 2016, 2017 Lycos financials are included, if Lycos contributed 10% to revenue and 5% to profits, 2016 revenue becomes Rs.2030 Cr and profit becomes Rs.385 Cr.
    So, in 5 years,
    Revenue Growth – 33.3%
    Profit Growth – 14.2 %

    Both BCG and Criteo haven’t grown much in the last few years.

    2+
    #7825
    Saul Goodman
    Registered Boarder

    3>


    @George
    , according to you BCG didn’t grow in spite of having Rs.2000 profits right? So applying your logic Criteo also hasn’t grown in spite of having $470 M in profits (for 2020 I’ve assumed Criteo’s profit as $97M). Why has that happened? You blame Mr.Reddy saying he gives excuses right? Then going by your logic Criteo should have increased profits at least by 100% right? Will you say the same thing about Criteo’s CEO?

    Logicalspeak has said that BCG could’ve increased revenues to Rs.6000 crs, so going by that logic Criteo also should’ve increased its revenues to at least $4.3B right? Why Criteo hasn’t done that? I seriously don’t understand that logic. I always ask for facts when someone shares their opinions and if those facts are right then I don’t have any problem to change my view.

    Please understand that getting Rs.2000 crs at once is different from getting Rs.20 crs or Rs.2 crs and the Rs.400 crs that BCG has in profits, that amount they don’t receive at once, it’ll come in installments and most of it goes to pay publishers and for other expenses. Inflation won’t be the same every year, there’ll be technological changes happening every year or rather every day.

    There are many reasons why a company may not grow which you and I both don’t know about. On this regard, I’ll always trust the CEO, he knows what he’s doing, it’s easy for us to comment but we’ll get to know more about the business and it’s problems only if we look at it from the CEO’s perspective.

    Comparing to Criteo, BCG’s growth is slightly more and you can see that BCG’s problems are more with Accounts receivable and it’s always more than Accounts Payable because they pay publishers every month and they get paid from advertisers after 4 months.

    3+
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