LBG Media PLC (LON: LBG) shares face a certain problem. Which is that while sites like LADbible are indeed extremely successful then so have many other such website adventures. The number of such sites that have gone on to remain successful for considerable periods of time is very small indeed. The problem is that old economic one, there’s near free entry into this market – so what’s the moat that protects the profits?
LBG has just released their first trading statement after the flotation in December and the numbers look very good indeed. Website visits soar to well over 60 billion for example. Revenue is expected to be over £54 million, an 80% rise on the previous trading period. The business is cash generative and so has reduced the debt burden as well as LBG having that £30 million raised in the IPO.
So, great results, and yet the LBG Media share price has only just topped, by a couple of pence, the flotation price. So, what’s happening here and what’s likely to happen next?
The problem the market has here is that no one can quite see what that moat is. This is the Warren Buffett idea that we want to invest in businesses which have some protection of their profit stream. Something that stops other folk from coming and eating their lunch. Some IP, or a distribution network, or a brand name, just something to stop people from copying.
With online news sites, it’s difficult to see what this is. There have been any number of shooting stars that then flamed out. So, what’s different about LADbible and what protects it?
Sure, we could point to the skills of the current management in being able to get this far. But there’s always that next generation of bright young things to worry about. What’s the protection?
We could even point to the recent Buzzfeed (NASDAQ: BZFD) where one of those former shooting stars, after sucking up a few of the other fallen ones, couldn’t even get a SPAC merger to go right. The stock’s half the SPCA price and near all of the SPAC holders withdrew their cash when the merger was announced.
Which is what the LBG Media problem is. That core business, LADbible, just what is there other than it being the latest in a line of fashionable sites to go look at? And what protects it and its audience from being the past fashionable site when new competition arrives?
Until there are some answers to these questions there’s likely to be a discount to the share price as against the operating results. Just because it’s so difficult to see what will protect those results over time.
If and when this worry is assuaged then that would mean a leveraged bound in the LBG Media share price. But that is an if and when.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .
Tim Worstall is a freelance writer specialising in economics and the financial markets.