[Logan]

Talking about LOC, some people think its like getting lollipop from a candy shop. The management has to look at different things before taking on any debt. There’s no use in taking loans if all the cash is used to pay interest instead of using it for growth. BCG can get LOC easily but when the rating is low, the interest rates will be high. If getting LOC results in more profits then obviously the company has to pay more taxes. BCG pays Rs.180-200crs taxes every year and with an increase in profits taxes may increase to 250-300crs. Once you make profits, you have to pay taxes in cash even if you have cash flow problems. You pay interest in cash after taking loans.

(https://www.fundera.com/business-loans/guides/business-loan-interest-rate
For business line of credit, in the US, interest charge is between 7-25%. For low rated companies it’ll be very high and for high rated companies it’ll be less.)

This is not justifying or defending the company for not getting the LOC. This is common sense. Like everyone I also want to see great growth rates in revenues and profits as early as possible but taking LOC should be advantageous to everything. Loans should be taken at the appropriate time and not just because you want a loan. What if you take loans and you can’t pay them later and as a result lose business because all the payments will be dedicated to paying off the loan? There’s a big list of companies which have done that and which have lost business. It’s funny how people don’t consider all these things and just look for binary answers. They just want “yes” or “no” to everything and they don’t try to analyze the situation. If no LOC then the management is fraud and they are trapping people. The management will try to negotiate for a better deal. Banks or lenders are not teddy bears, they won’t give you loans as per your liking and they’ll demand more from you. Just like you even they want to impress their shareholders.

[Logan]

Lycos-DAUM, Dividends, Impairment and other topics.

Lycos is like a phone (let’s say iPhone 4) that was released 10-11 years ago. That time with that phone you could do many things and it was very useful for many purposes but how many people still use iPhone 4? Apple will release the new iPhone 13 in the coming days/weeks. People will line up in queues to get the new phone but they won’t be interested to buy iPhone 4 even at a discount. Shouldn’t BCG try to build a technology that is like iPhone 13? Should it go back to iPhone 4? (I’m not talking about BCG building a phone – it’s just a figure of speech, I know some people will take it literally and say that I’m telling BCG to start making phones). I have great respect for Lycos and BCG is what it is today because of Lycos but economically and business wise getting it back urgently doesn’t make much sense. When there are new opportunities, the company should focus on that and can think of getting back Lycos later. Lycos is nothing to DAUM/Kakao. DAUM which is Kakao now, has plans to take it’s subs Kakao bank (KB) and KakaoPay (KP) public and seeking to raise $2.2B from KB and $1.4B from KP. Kakao is investing heavily in new-age tech and it holds many futuristic businesses. I don’t think Lycos will add much to it’s business.

Lycos was the main reason for BCG falling and for the extreme negative perception but that was way too exaggerated by many people who never bother to understand the situation properly. They thought since BCG back then named Lycos lost Lycos, it must be end of the world for BCG and BCG would lose everything but how much did BCG lose because of DAUM case? DAUM got back Lycos and what leverage does it have now? Can it go to courts again after getting back Lycos? Obviously legal matters should be done and dusted but that should also be done at the right time. Does it make sense to put money to get back Lycos when there’s a new acquisition coming or when you want to start a new division (audio ads)?

I don’t know what price iPhone 4 was when it was released back then so let us assume it as Rs.36,000. How much would you have paid for it in 2016-17? Will you pay Rs.36,000 now? I don’t think many people would be interested to buy it at 10% of the price also. Lycos should be treated similarly but obviously it won’t be available for very less. Companies and phones can’t be valued like that. My point was to make it easy to understand using examples. Being a layman myself, I try to put many things in layman terms so that everyone can understand things easily.

Some people say that the CEO/management is trapping investors by saying DAUM case is almost done etc. But are they trapping investors like me and others who are not at all worried about that which happened 5 years back? Majority of the investors don’t care or worry about DAUM. Like me many investors are more interested in the new-age business than getting back Lycos. I give more importance to “Brightcom” than Lycos. Lycos should be brought back because of many reasons and the biggest reason is to have better perception about the company.

[Logan]

On impairment, since BCG builds its own products, develops its own software etc, there’ll be changes in the technology (disruptions actually). The technology that is useful today won’t be useful after many years. You have to update your technology as time goes on. Same like the above example of iPhone 4 and iPhone 13. Which among those will be useful at present (or in the future)? Since iPhone 13 is not yet released, I’ll compare with iPhone 12.

Will the iPhone 4 be as good as the iPhone 12? Will it be compatible with the newer versions of many apps? Are the camera specs as good as the latest one? Is the processor as good as the new one? Can you do multitasks with the old one like you can do with the newer one? iPhone 4’s was 512MB RAM, 8/16GB storage, rear camera 5MP (megapixels) and front camera 0.3MP, iOS 6.1.3, Display 3.50 inch (640×960), one-core processor. iPhone 12 pro has 3 rear camera 36MP, front is 12MP, Storage is 64GB, OS is iOS 14, A14 Bionic processor and display 6.10 inch (1170×2532). Which is better specs wise and which is better for 2021?

Now what if Apple didn’t start making new and better iPhones and stuck to iPhone 4? Will there be customers for that now? As technology changes, companies should upgrade too. What if BCG had a 2010 version of a product even now and what if that software was not compatible with clients’ business. Can anyone expect clients to do business with BCG even with BCG not upgrading it’s products? Obviously the answer is no and the clients would go to BCG’s competitors who have newer versions. What happens to the old iPhone 4 that you had for many years? How much will you get for that now? For exchange you may get some money but what about for software products? Will anyone buy a Windows XP or the Windows 10? For the sake of simplicity I gave iPhone as an example. You can’t exchange a software product for a newer one and you have to write that off. We all will have old clothes that we give away for free. Will we ask money for those old clothes? Some people will throw away the old clothes. Does that mean those clothes didn’t have any use or value in the past? The same with many appliances, cars, bikes etc. They will be very useful for us for many years but after that they won’t be of much use. There’ll be depreciation and amortizations but sometimes you’ll have to write off many things.

(I’m not comparing BCG and Apple’s business and I’m not saying BCG is as good as Apple, I’m just doing this to explain the situation in a simple way).

[Logan]

Let me share some articles about impairment or write offs that have happened in the ad-tech industry.

(Adding too many links will make the message as spam so I‘ve just copy pasted the links, you can copy them and read them)

https://www.nexttv.com/news/verizon-sells-off-ad-tech-media-assets-for-dollar5-billion

https://www.mediapost.com/publications/article/360608/dentsu-reports-137-billion-impairment-charge-for.html

https://www.cmo.com.au/article/632923/telstra-writes-off-ooyala-subsidiary-announces-exit-adtech-business/

Verizon took $4.6B impairment charge for its ad-tech business. It spent close to $9B to acquire AOL and Yahoo. $4.6B is not a small amount. Verizon is one of the largest companies in the world.

Similar to Verizon, Telstra which is an Australian company (13th by market cap in Australia) took a impairment charge of $273M in it’s ad-tech business. Denstu took $1.37B impairment charge in 2020. Few years back Magnite (back then Rubicon) wrote off assets worth $100M.

Giants like these have impaired assets worth billions of dollars. Assets or software products which will be very useful now won’t be useful in the future. This is a very dynamic industry and updating technology as per changes is very important. You can’t compare to a random industry and say they didn’t write off so you should also not write off. That’s silly and it’s being ignorant.

On dividends, is it prudent to pay more dividends when you want to acquire a new company and when you have cash flow problems? Some people say the company’s numbers will be legit only if 25% of the profits will be paid as dividends. This is the most silliest argument ever. Comparing IT companies with BCG is the funniest thing I’ve seen. Both businesses are completely different. Just because you think BCG as an IT company, doesn’t make it an IT company. People have to check properly and then write something. IT companies throw off free cash which will be used for paying dividend. They may not have to spend money on technology, developing products or for working capital needs. People should check industry specific companies to compare many things. How many ad-tech companies pay dividend? As mentioned above, even if you can’t grow using profits, you have to spend your profits for maintaining the business or for survival of the business. Won’t there be any headwinds for any company? If doing ad-tech business is so easy then why aren’t everyone doing it?

People should not buy stocks of companies like BCG if they want more dividends. There are many other companies that pay more dividends and they can invest in those. BCG will pay dividend but that won’t be as good as you get with other companies. I’ve not invested in BCG to get dividends and I won’t care if they don’t pay dividends.

[Logan]

Now talking about stock price and valuation, I’ve seen people giving crazy targets. One or two UCs and people will say BCG should trade above 500 or 1000 or some say even 1500. For 1500, BCG’s valuation will be over 1lakh crore and P/E ratio will be over 200 which is crazy. Just because AFFLE and TTD command higher P/E multiples doesn’t mean even BCG has to have a similar multiple. There are many factors that decide how much valuation a company will have. Both AFFLE and TTD are relatively newer companies and they command higher multiples which BCG won’t get. Both have good past image which BCG is not having. Just because a stock is undervalued doesn’t mean right away it’ll become fairly valued. There’ll be corrections too. The stock has gone up 7 times with minor breaks and there’ll be cooling off period. If not for the bonus and acquisition news, the stock wouldn’t have gone up like this in such a short amount of time.

Individuals have to take their own decisions and should rely on their own research and analysis before buying or selling any share – especially a small cap like BCG. They should not get carried away looking at crazy targets that many people give. If they want to rely on others then they should invest in mutual funds or large cap stocks or FDs or bonds. There are risks in investing in any stock and the risk will be bigger with small cap stocks. You can’t buy when there’s a UC and can’t sell when there’s an LC. Operators control prices of stocks like BCG which people should be aware of. They should determine their own targets and not rely on others.

Just like people who hype the stock, there’ll be people who will be hell bent on trying to influence others to sell their shares. They would’ve sold their shares at a lower price and will try very hard to bring unwanted negativity. They will make silly things look like some big problem. They’ll recommend shares where banks, institutions have sold shares and the company which still hasn’t published it’s Q4 results. They talk about BCG diluting shares too much but they try to hype a company that’s issuing 5cr more shares which currently has only 10cr shares. Isn’t that too much dilution? They have problems if BCG does that but no problem if other companies do something similar? Without knowing properly, they say FPIs who are subscribing to BCG’s shares are traders but fail to talk about the people who are subscribing to that company’s shares. There’s no proper information on people who are subscribing to the other company’s issuance. I don’t know much about that company and it’s business and I don’t know why those banks and institutions sold their shares but people said that BCG’s CEO gives excuses saying FIIs dumped shares but they won’t talk about dumping that happened in the other company. Without proper understanding I won’t comment anything but here I’m talking about the hypocrisy. I’m not telling anyone not to invest in that or any other stock, that’s always individuals’ choice. Before investing people should do all the research and analysis.

People should be aware of other people who give targets. Suppose a share is trading at 100 and people give target of 150, that means they will start dumping (smaller quantities at the beginning) from 125 and by 140 or 145 they’ll completely sell their shares. I’m not saying everywhere that’s the case and everyone does that but people should be aware of that.

[Logan]

Coming to BCG, instead of blaming others, if people have any problem with the company or the CEO/management, they should always give complaint to SEBI or other concerned authorities. They should talk to the management directly (in conference calls or AGM or visit the company) and clear any doubts they have. Don’t depend on what others say or do and always take your own decisions and do it in a legal way. Just few weeks back when the price was below 10, people were saying they’ll complain to the authorities about many things (about PW issuance, numbers etc) but the same people are hyping the stock now. How will you take them seriously? Or is it that the numbers were fake when the price was below 10 and suddenly became legit as the price went up? What happened to asking SEBI for a forensic audit?

Just like all the stocks there are opportunities and risks in investing in BCG too. Everyone has to be aware of that. There are opportunities and risks both in business and valuation/market wise. People should understand the company’s business and should always compare with real peers and not with random companies that are mentioned in some website or that people talk about. People should be aware of the changes happening in the industry too. This is a dynamic industry and things change quickly and people have to follow that regularly. Then they should be aware of the market conditions/factors too. Right now we have a bull market and all the stocks are going up. In 2016-18 period also stocks went up and later many small and medium cap stocks fell. Some of the very good companies’ stocks also fell because of the overall sentiment. Then again COVID crash happened. No one can predict when something will happen and before investing, people should be ready for both bull and bear markets.

[Raj]

Thanks Logan guru ji for the much awaited timely advise.. 🙏 Regards..

[Raj]

https://tech.hindustantimes.com/amp/tech/news/life-after-cookies-transparency-and-open-source-is-the-future-says-the-trade-desk-s-tejinder-gill-71627824855921.html

[Logan]

Top Supply Side Ad Platforms Startups

Brightcom offers video supply side platform for publishers to monetize their digital ad inventory and advertisers to reach their target audience across display, mobile, and video. Brightcom’s proprietary technology platform, Compass enables publishers to maximize yield by monetizing their media across all their devices utilizing solutions like real-time bidding, tag integration, header bidding and other hybrid solutions.

Nice words mentioned about Brightcom and in the introduction they have mentioned “Globally there are 179 Supply Side Ad Platforms companies, and here is the list of the 10 most interesting ones”

I don’t know much about Tracxn but looks like they track everything related to technology, and startups which will be useful for venture capitalists, private equity investors, large corporations etc.

This is what is mentioned in their website :

Tracking Innovative companies across 350+ Technology Sectors, 1000+ Emerging Themes, and Dedicated Coverage on 30+ Countries

Designed with precision for

Private Market Investors – VC, PE, IB, Incubators, Angel Networks, Family Offices

Large Corporates – M&A, Innovation and Digital Transformation Teams

Government Agencies, Industry Bodies, Universities

[hw_tw]

Nice to see Brightcom listed in Tracxn…thanks @Logan for sharing this

Just a little background about Tracxn and it’s founder Abhishek Goyal.

Tracxn is a Bengaluru based company. It creates a database of startups across the world and across emerging sectors and makes it easy for private equity investors to invest.

Ratan Tata and Flipkart founders are investors in it

One of the co-founder Abhishek Goyal is a techie turned investor. He is highly regarded in the startup world. During his stint as VC in Accel partners he was the one who made the first million dollar investment in Flipkart when it was running from a rented house in Koramangala. In a way he kickstarted the startup revolution in India. Apart from running Tracxn he is a Angel investor and has invested in many startups like Delhivery and others

[allenasrini]

Logan I think you should continue to post about other companies in the adtech as well as industry as a whole. With BCG growing in size after acquisition and movement of stock price it is much more necessary for us to understand industry and developments. Your posts have always been very informative and insightful.

[hw_tw]

SKR talking about Jio in 2016. He was saying Jio will be making money with ads and it’s positive for DM companies like Brightcom.

https://www.indiatvnews.com/business/india-rjio-wave-a-boom-for-digital-marketing-in-india-lycos-ceo-thinks-346737

He seems to have rightly timed the acquisition of an Indian DM company which would help them grow both in Indian and International markets

[Brightspot]

https://www.exchange4media.com/media-others-news/reliance-jio-looks-to-shake-up-digital-advertising-market-with-jioads-115110.html

[Investor_2022]

Real speed up in share price will begin now.

[admin]

If the projections work out as conceived, we will be heading to have a bright time. Management would have considered whether they want to hold greater stake in a smaller company or do they want to grow the company bigger (especially at a time when growth opportunities in this industry is knocking) though at the cost of little dilution. The later option is always sensible and I am sure the maths is done right.

[Logan]

They make few silly mistakes frequently. Instead of mentioning it as FY2022, they have mentioned as FY2021. Main heading is correct – Outlook for FY 2022 but while mentioning specific quarters they have made mistakes. For Q2,3,4 FY2022, they’ve mentioned FY2021. I remember last year for September or June quarter they had mentioned date as 31 June or 31 September.

They should check properly before sharing these official documents. Some vultures will try to prey on these mistakes and will try desparately to create unwanted negativity.

[Abhishek]

Good catch Logan sir. These small-2 things matter a lot for Corporate communication. I strongly feel that BCG must hire a senior person for corporate communication to strengthen the governance process. The current team was never impressive, they have been making mistakes, it true that we have seen some improvement in last 2 quarters but now it’s a need of an hour when company is growing fast organically and multiple acquisitions are in pipeline.

@Admin, could you please send an email on behalf of investor group asking them to correct this? I believe that accepting mistake and correcting also give strong positive message to market.
Agree??

[explorer]

I hope to see Brightcom very soon in this list

https://www.google.com/ads/publisher/partners/find-a-partner/#!?modal_active=none

[explorer]

I think there is a difference to certified partners as opposed to non-certified partners.

The following link details the difference. Currently there is just a handful of certified partners across the globe(53 as per google). I’m glad that our company is one of them. Having the certified partner badge in itself will attract and bring a lot more publishers and advertisers.

https://sortable.com/blog/ad-monetization/what-it-means-to-be-a-google-certified-publishing-partner/

[Logan]

I think this decade will be about Indian “tech” companies gaining more global recognition. Last decade it was the Chinese companies. Our companies are competiting with other global players too whereas in China they have monopoly as other companies aren’t allowed to do business (or are highly regulated/restricted).

It’s good that BCG is concentrating on our markets at the right time. Few years back BCG was doing ad-tech business here but it was not profitable (as the CEO mentioned in some conference call). Better to acquire a company as building something on your own may take little more time.

Other good thing is getting back Lycos may help in growing the business in APAC regions (Asia-Pacific) which is also a growing market.

Very interesting times ahead if everything goes according to plan.

[Author]

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