Brightcom Group Limited (Formerly Lycos Internet) - Way to Digitalization

sk1, please look at the consolidated financials. Lycos has 18 overseas subsidiaries since it followed an inorganic growth strategy regularly and acquired companies in different countries, and a large part of the revenue & profits come from abroad. Primary subsidiaries are in US, South America and Israel. Of the 18 subsidiaries, the parent company holding is 100% in 17 of them, and 99% in the remaining one.

Edit - Also, I suggest one should enter this stock only if one is committed to a real long term, 2-3 yrs at least… usually one should purchase any stock only for long term, but the case is even more so for this stock because of the high volatility, probably due to operator influence.

Lycos has supplied a software module for generation of way bills to the Andhra Pradesh Govt. Recently reports have come that some hackers have breached the software and fraud has been reported. This has happened relating to the Granite Industry way bills. I am reporting this only for information.

Good write-up friends. It is informative to hear both sides of the argument. What do fellow members think of their foray into IoT. It seems like till last year the entire management focus was on digital marketing and then suddenly this year it has shifted to IoT and wearable devices. Please correct me if I am mistaken. This yo-yo-ing worries me…what is the management’s vision?

I am unclear on the business model of the company. Who are the customers of the Lycos and and how are payments structured? What is the process of customer acquisition? Who does the company compete with in the digital space? I am sure the answers are out there, I just came across the company a few hours ago and have not yet gotten to them. But I feel with such a niche business, the management should make efforts to explain this in their quarterly presentations. Not everyone has access to a management con-call or 1-1. Perhaps it is this worry that is translating itself into a “are the ops genuine?” kind of questions.

Just based off the numbers it seems to quite undervalued. PE of 5-6x, in an industry that we know is going to grow faster, 80cr of fcf translating into 6.5% FCF yield, falling debt etc.

I actually buy the explanation that dividend is not being paid to fund growth, but clearly there is an apprehension about the company/ management. Is it just a rumour? or one of those things that causes a mis-pricing that one takes advantage of? Only more study/ time can tell.

I managed to catch a bit of the conference call of Lycos management. I will try to summarise what I heard as accurately as possible, with no guarantees!

The call started with the CFO giving a snapshot of the 1Q results. The only thing of note here if I heard it correctly was that debtors days have reduced and debtors over six months are now at negligible levels.

The CFO then handed the reins to Mr. Suresh the CMD. The CMD talked of some tech changes that they have instituted, with real time bidding for in their digital marketing segment. He talked of how advt is moving to video and more specifically mobile phone video format and that Lycos was well prepared for it. Lycos will be attending the Yahoo developer summit later this year and also a wearable device conference in Las Vegas.

He clarified that the Lycos Life wearable products were soft launched and no major advertising has been done. That will only begin next month or so. It will take another 2 quarters atleast for Lycos Life to be shown as a separate segment in the financials.

Then came the Q&A. All questions were from individual investors. That tells you something. Quite a few questions were direct i.e. ‘why is the stock price not going up’ - types. To this Suresh admitted that they have not been proactive. They attended a few analyst calls after results and got a good response, but they need to do more. He talked of a possibility of stationing a team in Mumbai that can generate interest and better explain the company’s operations (to the broker community?). Lycos will take more efforts to tap the Institutional Investor Community.

He talked of patent monetisation. Erstwhile Lycos has a few valuable patents and they are talking to a few people on joint development etc. but this will take time to materialise. He pointed out that these patents have not been valued and thus do not appear on the balancesheet of the co.

He clarified that the rumour of the company having raised US$100mn is just that. No concrete plans as yet, if I understood him correctly.

I had done a *1 to ask him the following questions:

  1. Fund requirement over the next 3 years, how much dilution expected or comfortable with?
    and
  2. Biggest competitors in digital marketing and now the wearable space. What is your competitve advantage against say a Google or Apple or Samsung if they decide to enter the DM or the Device space aggressively.

Oddly, my name was never called and the call ended. Perhaps better to send it to them via email?

My observations:

  1. Individual investor dominated stock. Hence the price gyrations. Is it a warning or a opportunity, only time will tell!
  2. The CMD was asked for the debt amount o/s as on June 30. He said he did not remember. If debt reduction was a major thrust area for me, I would have remembered the balance on a daily basis. But thats me. Just found this odd, not necessarily worrying. Oddly the CFO also did not jump in with the answer.

Anyone else who managed to be on the call, please feel free to add or correct any info here. Thanks.

Good summary of the call @alimaye. Just for your information (since you mentioned somewhere not everyone might have access to the calls), all the conference call transcripts are available on the Lycos site (in my book this is a +1 for the management on transparency)… you can go through the old calls also. There are a few institutional players also who attend the calls, you can see their questions in some of the older calls. This time around somehow it was all individual investors asking the questions, and yes, some of the questions were blunt. I personally thought it was unfair that the management be made responsible for stock price performance - no one understands how or why the stock market values a company, and I would rather that the management focus on improving the business performance rather than worry about stock fluctuations. As the masters say, better to keep focus on the playing field rather than the scoreboard.

I was present for the call too - in fact, I was the one who asked the June end debt question (I think there was an issue with the call bridge this time, even I had problems pressing *1, had to do it 5-6 times). Debt reduction is not a ‘major thrust area’ as you put it, it is just the reason why the dividend is not being paid. At March end debt was 96 cr compared to yearly profit of 342 cr, so you can see nothing to worry about. But yes, I would expect the CFO at least to know these numbers.

Coming to IOT, I have my concerns. They have been focused on DM for the past decade or so, and this is their first major foray into something different. So not exactly yo-yo-ing, but IOT is very different business from DM. IOT gets them into hardware, manufacturing (even if outsourced), B2C whereas DM is entirely software, ad exchanges and B2B. So they dont necessarily have the skills to do it. However that said IOT is an emerging area so frankly no one really knows which way it is going to go, and there are no major well known brands particularly in India, so they may still succeed. I just hope that they monitor the IOT business closely and ditch it fast if they dont succeed, instead of dragging it along. They are still <1% market share in DM, so there is plenty for them to do.

@mvr99 and @alimaye, I have attended Lycos concall for Q4 FY15. And asked them question on loans & advances (short term+long term) reported in their FY14 annual report which is almost 33% of consolidated assets. On call they gave very little information but conformed to share information on mail. Accordingly I sent mail with my questions and none from management responded even after numerous follow ups.

I have also sent mails to them to share annual accounts of subsidiaries company for FY14, which are supposed to share with shareholders as and when asked as per companies Act, but initially Rajesh (IR officer) told that same will be shared in a week as they do not have readily available with them (surprise … I was asking not for the current year but for last year, that fellow doesn’t know that consolidated statement is prepared only after having information from each subsidiary) and as of that day no investor asked them those docs but as it happens, till date no reply on that even after numerous follow up.

They didn’t even responded to my complaint in SEBI’s score for not providing requested details.

As per my experience, management seems to be dishonest for following reasons:

  1. They say that they are undervalued but they do not value retail shareholder.
  2. They say they are worried to payoff high cost debt asap, refinance is also an option in this world that even when they have a good PAT (on books, not sure if its real) and interest rate declining.
  3. Promoter shares still pledged, they claimed its issue with Bank though they have fully paid back the entire loan against pledged shares, In India no bank can keep pledged share in their custody once the loan is paid off…someone from bank can confirm on this.
  4. They say that they are in digital marketing … what’s marketing … convincing the other party and selling of goods/services…when they can’t sell their growth story, how can one believe they will do well for their clients.
  5. In one of the con call (read somewhere in past transcript available on their site), management confirmed that they didn’t found anything unusual in sharp price movement of stock… again contrasting …digital marketing is all about analytics & big data… they can’t even recognize that their stock is fully operator driven, not sure how are they earning from their customers.

Regards
Gaurav

Disclaimer: I had only one (1) stock of Lycos in my portfolio, which was bought so as to claim my right to access financial accounts of subsidiary companies. Also post their reluctance to share details to me as a shareholder (or Partowner as per Gurus of value investing) i refrained myself from attending their Q1FY16 concall.

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Good points. I have also had a similar experience with the management. Sent them a list a 10 Qs, after which I received a stock email saying I would be receiving a response in 24 to 48 hours. Its been several days since then, still awaiting the 24-48 hours to get over :smile:

Investor queries not being answered is surely a negative. Whether it is because of poor/inefficient management of operations or because of malintent remains to be seen. Either ways, not particularly good.

Just on the pledged shareholding bit, some of the pledged shares were indeed released in Q1, so the pledged shareholding has come down from 6.95% of total shares at March end, to 2.39% at June end.

Before my previous post, I had emailed the company (the first time I have done so), repeating my conference call query as to debt level at June end. Within two hours I have received the reply - “Net Debt as on June 30, 2015 is Rs 92 Crores”.

I too have received a reply today, after I posted the above. Not all questions have been answered but some have with the rest to be answered “in due course of time”. The Qs pertained to the business models and seem to have been dealt with fairly in detail. Havent had time to go through properly so far, but will keep fellow members posted. Good show from Lycos, I must say.

any thoughts on this new venture with Apllo MINT

it is a great news for lycos. New venture will definitely good prospectus as lycos has good experience in It and advertising department. only thing not clear about equity share of two companies.
disclosure: I am holding the shares.

Lots of positive developments going around in the company:

  1. JV with Apollo International; Lycos will hold a 49% stake with Apollo’s share at 51%
  2. Michael Mauldin, founder and inventor of Lycos has rejoined the company after 17 years. http://www.mediapost.com/publications/article/256827/lycos-inventor-michael-mauldin-returns-as-company.html
  3. Venturing into wearable technology and IoT

Chairman & CEO Suresh Reddy is confident of 20-25% revenue and EPS growth in FY16 and also planning a UK/US listing on NASDAQ. https://www.youtube.com/watch?v=tTdWIJ0Nsb0

Stock has taken a lot of beating despite decent results and is available at a P/E of 4!!

Disclosure: Invested

Hi,
Could you please share the answers pertaining to the business model in this group?

Regards.

100 + cr spent on wearables seems way too high. Results are of course nice, but people dont trust that numbers are correct. Lycos rank of Alexa is nothing to write home about and wearables we have newer and nimbler players. Most importantly, if the company is good at digital marketing, then why not increase focus on that and become world beating there (inmobi does not come and discuss wearables and bitcoin?). Finally, in case of any such doubts, we should never buy company unless it makes a new 52 week high. Discussion on bitcoins etc also seems irrelevant to me.

They have done a soft launch for wearables with no big marketing in the initial phases to see the consumer/customer response. The spend is bound to be higher as it is a hardware + software business. I guess they are trying out things (btw InMobi has changed its business model a number of times!)

Could you please highlight how does the Alexa rank come into picture for Lycos as they are a digital advertising play. People would not come and visit their site like a search engine or e-commerce company?

The 1Q15 con call report is now available on the company website.

I think the biggest worry of the company has been high recievables (~6 months outstanding). This, I believe is being addressed to a certain extent.
Receivables in digital segment have reduced from 106days to 100days and on consolidation basis receivables have decreased from 158days to140days. The receivables for more than six months in digital,is Rs.20 crores. All other receivables are collected.

they spent 100 cr just building the hardware apparently, which i think is too much. lycos business in usa is being touted as a publisher side property, so talking about alexa rank. my submission is that we can never know which company is fraud or not, but possibly makes sense to avoid companies at less than 5-7 PE multiples (when whole market does not believe in story), for small caps, i would rather buy when they make a new high

LYCOS (NSE & BSE: “LYCOS” or the “company”), one of the most widely known Internet brands in the world and one of the first search engines on the web, on 14th November 2015 announced its unaudited financial results for the quarter ended 30th September, 2015. The Highlights: Q2 consolidated revenue of Rs. 565.08 Crores, up 22.79% year-over-year. Q2 consolidated EBITDA of Rs. 182.72 Crores. Q2 profit after tax (PAT) of Rs. 105.16 Crores Q2 consolidated earnings per share (EPS) of Rs. 2.21. “Our teams across the globe are super excited about what we stand for and where we are headed. This quarter is a reflection of that enthusiasm. Big thank you to all the supporters, as we work our way towards the next level.”, said Suresh Reddy, Chairman and CEO of LYCOS. “This quarter the digital division sales are up by 33% from last year.” Revenue for Q2 FY2015-16 was Rs. 565.08 Crores, an increase of 13.33% Q-o-Q and 22.79% Y-o-Y. EBIDTA for Q2 FY2015-16 was Rs. 182.72 Crores, an increase of 18.53% Q-o-Q and increase of 30% Y-o-Y. PAT for Q2 FY2015-16 was Rs. 105.16 Crores, an increase of 15.96% Q-o-Q and increase of 27.50% Y-o-Y. Revenue from Digital Marketing Segment for Q2 FY2015-16 was Rs 458.38 Crores, an increase of 17.92 % Q-o-Q and an increase of 33.04% Y-o-Y. PBT from Digital Marketing Segment for Q2 FY2015-16 was Rs 162.32 Crores, an increase of 11.42% Q-o-Q and an increase of 26.16% Y-o-Y. Revenue from Software Development Segment for Q2 FY2015-16 was Rs 106.70 Crores, a decrease of 2.93% Q-o-Q and a decrease of 7.74% Y-o-Y. Business highlights: LYCOS Advertising A new product, ‘Vid-In’ was launched that helps publishers monetize their inventory in unique ways by providing them a customizable large video player and tailor-made content. Reccruited new publishers in the News and Travel verticals. A significant delegation participated in Dmexco, the biggest event in the ad-tech industry, this generated substantial new business opportunities and revitalized existing partnerships. Technology Compass: This quarter we focused on enhancing the system’s key features by adding new UI functionalities, we developed API integrations to key demand partners in order to increase operational and yield efficiency. We also added 2 new RTB demand partners and enhanced with new reporting capabilities. Business Intelligence: We completed the development and QA of 2 essential data platforms for the small player and Media Buyers dashboards. Auto-tools development: particularly for mobile and programmatic buying. Video Advertising Started working together with a European SSP (Sell Side Platform) for European demand. In addition, one of our main and well-known demand partners approved our mobile supply. We integrated a new video player to our activity. The mobile apps video activity increased a lot this quarter. We believe it is only the beginning since In-app video advertising is growing exponentially. We had a roadshow in which we met all our main programmatic partners, following that trip we scaled our activity with those partners. LYCOS Media Rebranded and launched 10 new Search verticals including: Business, Economy, Money Matters, Show Biz, Entertainment, Health, Money, Sports, Technology and Travel. Users can now select Lycos and these verticals as there start pages which result in increased search traffic. Signed up with Indeed.com to build a job search vertical at www.jobs.lycos.com, looking to launch the site before the end of Q4. Launched a new deal with Dex Online with a new Supermedia (local) feed. It is live on whowhere.com. Renewed the deal with Google for contextual advertising which increases our revenue share with them. The Boston team attended the ‘Yahoo Partner Day’ at Levis Stadium in San Jose, CA. The team is working on several new initiatives resulting from those meeting including LYCOS email platform and domain monetization ideas. Signed a deal with a content provider (Tinbu) whereby we will be launching 8 additional verticals of various topics including: lottery, horoscopes, celebrity, gas prices, weather, daily comics, ‘today in history’ and suduko. LYCOS LIFE The team is developing a marketing strategy via a test market in one of the major metropolitan cities. There has been excellent response on the Smart Band, especially its ‘tap to transfer’ and sleep alert features. Conference Call Details: LYCOS will host a conference call on Thursday, November 19, 2015, at 2.00 pm IST (Indian Standard Time) to discuss the financial results. Call-in details will be available from the Investor Relations page of the company’s website at: http://corp.lycos.com/investors/ About LYCOS: LYCOS is one of the original and most widely known Internet brands in the world, evolving from pioneering search on the web, into a family of three business units covering digital media, marketing, and Internet of Things (IoT). LYCOS Media is a network of easy-to-use community and social sites in 120 languages across 177 countries. LYCOS’ award-winning products and services include tools for blogging, web publishing and hosting, online games, e-mail, and search. The LYCOS Network of sites and services include Lycos.com, Tripod, Angelfire, HotBot, Gamesville, WhoWhere, and LYCOS Mail. LYCOS Advertising enables businesses, agencies, and online publishers worldwide in meeting their digital marketing needs, serving 40 billion impressions every month. Clients include leading blue chip advertisers like Airtel, British Airways, Coca-Cola, Hyundai Motors, ICICI Bank, ITC, ING, Lenovo, LIC, Maruti Suzuki, MTV, P&G, Qatar Airways, Samsung, Viacom, Sony, Star India, Vodafone, Titan, and Unilever. Publishers include Facebook, LinkedIn, MSN, Twitter, and Yahoo! LYCOS works with agencies like Havas Digital, JWT, Mediacom, Mindshare, Neo@Ogilvy, OgilvyOne, OMD, Satchi&Satchi, TBWA, and ZenithOptiMedia, to name a few. LYCOS Life is the new consumer products division focussed on IoT. LYCOS Life is dedicated to the future of communication and information management in which everyday objects will be connected to the internet, also known as the “Internet of Things” (IoT).

disclosure: holding it

Lycos Quarter 2 - Fy16 -Results Analysis n Projections:

ALL figures are CONSOLIDATED numbers ( beware of posts highlighting standalone results with the sole intention of misguiding small investors and drive them to sell their shares)

Q2 16 metrics:July- Sep 2015 (ESTIMATED)
Revenue: INR 565 cr
PAT: INR 105.16 cr
EPS: INR 2.21

Q2 of FY15 metrics :July- Sep 2014
Revenue: INR 460 cr
PAT: INR 82.47cr
EPS: INR 1.76

April- June 2015 ( Q1 of FY16):
Revenue: INR 498.64cr
PAT: INR 90.69 cr
EPS: INR 1.9


Growth Trajectory:
SEQUENTIAL (Q2-FY16 over Q1-FY 16)

  1. Revenue growth: 13.31% (565 over 498.64)
  2. PAT growth: 16%. (105.16 over 90.69)
  3. EPS growth: 16.31%. (2.21 over 1.9)

"YoY -Q2 Comparison (Q2-FY16 over Q2-FY 15) is as follows:

  1. Revenue growth: 22.82 % (565 over 460)
  2. PAT growth: 27.51 %. (105.16 over 82.47)
  3. EPS growth: 25.57 % (2.21 over 1.76)

Q3-16: PROJECTIONS:Oct-Dec 2015
Revenue: INR 700 cr
PAT: INR 120 cr
EPS: INR 2.52

Estimated Yearly results FY 2016 -CONSOLIDATED

Revenue: INR 2300 Cr
PAT: INR 410 Cr
EPS:INR 8.61

If they above projections come true,

Year (FY16)on Year (FY15)“Annual Growth” Rates will be:

  1. Revenue growth: 17.52 % (2300 cr over 1957 cr)
  2. PAT growth: 19.88% (410 cr over 342 cr)
  3. EPS growth: 19.75% (8.61 over 7.19)

The key positive triggers ( beyond the financials )to look for are :

  1. Announcement about Debt Free status- VERY MUCH POSSIBLE by Feb`16.
  2. Dividend announcement- ON THE CARDS after year end results
  3. Growth in top and bottom lines at STAND ALONE level- Q 4 POSSIBILITY ( bottomline is already POSITIVE during Q2)
  4. Announcement about SIGNIFICANT Traction on Lycos Life Sales- POSSIBLE in Q3 ( current), being the holiday season
  5. Announcement about US Listing Plans
  6. Positive Cash Flows- from March`15 Cash ( CA)grew from Rs 56 cr to Rs 88.7 cr
  7. Trade Receivables Trajectory: FY-15 year end TR were Rs. 845cr and are now at the end of Sep 15 marginally up to Rs.878 Cr. Receivable days seemingly drifting downwards …POSITIVE
  8. Expenses Ratio:71% (403/565) vs 71.6% (357.13/498.63) in Q1 vs 74% (333/450 )year ago quarter… POSITIVE ( 300 basis points improvement YoY)

Additional insights- Overall vs.Digital Vs Software:
1.EBIDTA Margin GROWTH:
A.Overall EBIDTA Margin seq 29.13% (164.58/565) from 28.98% (144.55/498.63). YoY from 29.06% (130.78/450.19) to 29.13% in Q2-16
B. DigitalEBIDTA Margin: seq…35.41% (162.34 /458.38) vs 37.48% (145.7/388.71)
yoy 35.41% (162.34 /458.38) vs 37.98% (130.86/344.53) in year ago quarter. Comment : Marginal drop for significant revenue gains
C.Software EBIDTA Margin: seq…2.24 /106.7 vs loss of 1.15 /109.93 yoy 2.24/106.7 vs loss of 0.08/115.7 in year ago quarter. Margin turned positive decesively.
D.Tax provisioning:Rs.55.33 cr vs 49.91 cr ( previous quarter)vs 39.91 cr (year ago quarter). Year todate - Rs 105.24 cr vs Rs.79.08 cr ( 6 m of previous FY)

Given the past behavior of stock price in the past, not venturing to give target prices:-).

BUT - Did n`t Warren Buffet share with us this wealth creation tip ?

" Stay invested as long as the company produces growing revenues and profits , QoQ, YoY, IRRESPECTIVE OF ITS SHARE PRICE MOVEMENT".
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