With the Bidstack (LSE:BIDS) share price languishing at 8.25p in early Monday trading, is there hope for a turnaround?
It all seemed so positive for the video game advertising group. AIM investors love a good story, and Bidstack had the narrative all sewn up.
CEO James Draper founded the software firm as a one-man band in 2015. At the time it was a live bidding platform for last-minute digital advertising. It raised £100,000 on crowdfunding site Crowdcube, pivoted into video games in 2017 and became the first Crowdcube-funded project to IPO.
Bidstack went public in September 2018 when former health and fitness app developer Kin Group completed a £6.8 million reverse takeover. An oversubscribed share placing at 6p raised £3.5 million to finance its early growth.
Serious retail interest has followed Bidstack all the way to the AIM market.
Investors who can’t see an easy profit in the likes of UK AIM-listed game developers like Frontier Developments (LSE:FDEV), Codemasters (LSE:CDM) or Team17 (LSE:TM17) — the latter of which has been on a rapid and profitable rocket ride — have definitely been tempted to invest in this more profitable-sounding enterprise.
The tech was, and still is, promising, for sure. Bidstack software inserts advertising into ‘natural spaces’ in video games that cannot be blocked by ad-blockers. At its IPO, it boasted an enviable client list including Vodafone (LSE:VOD), Dominos Pizza (LSE:DOM) and Sports Interactive, which makes the neve-rending stat-nerd heaven Football Manager series.
In the nine months after its September 2018 listing, shares rocketed to five times the IPO price on sentiment and hype. But a June 2019 price of 37p would be its peak. Bidstack has not managed to sustain the momentum, now sinking like a souffle taken out of the oven too soon.
Short-sellers took an iron grip at the peak price and haven’t let go since, with shares sinking back to single figures.
From the year-end results to 30 December 2017 to 30 December 2018, revenue tripled from £100,000 to £320,000, but pre-tax losses widened by 575%, from £490,000 to £3.31 million.
Administrative expenses jumped 214% to £1.3 million and the cost of sales leapt 137% to £200,000 over the period.
The high cost of bringing its product to market has hurt Bidstack’s repeated claims that big profits are just over the next horizon.
An 11 February 2020 trading update for the year ending 31 December 2019 admitted what many smaller investors suspected: that the company would miss its full-year revenue targets. The shares dropped 20% in one day.
Unaudited revenues would be half those of the previous full year at £150,000, with an expected operating loss of £5.3 million. Revenues for the first half of 2020 would be “minor”, worryingly.
And yet the big contract wins keep on coming. August 2019 saw Bidstack ink a deal with Epic Games, publisher of cultural phenomenon Fortnite, to use one of the company’s plugins to potentially create new ad space in some of the world’s most-played games.
Developers would be given “full control to identify and define areas within their games through which they could make native in-game advertising available” as well as retrofitting ads into existing games, adding additional monetisation into back catalogues that tend to stop producing significant revenue in the years after their release.
Note the language. ‘Could’, not ‘will’. There is much potential here and there always has been. Investors have been tireless in their support. But how much staying power is left?
The company reminds the market as often as it can that it is “trailblazing the creation of in-game advertising…which comes with many technical, regulatory and commercial hurdles.”
According to its own releases, the industry does not yet recognise a specific category for native in-game advertising and while its work with the Internet Advertising Bureau continues, this has led to some very technically challenging and expensive difficulties. Its first acquisition of ad-fraud detector Pubguard in August 2019 speaks to this point, as Bidstack said the buyout would give the company a ready-made solution to save “several months” of development time.
The software protects gamers against fake adverts that could redirect them to adult content, Draper said at the time.
A bridge too far?
According to trade body the Entertainment Retailers Association, video games already account for more than 51% of all UK entertainment revenue and at a value of £3.9 billion are worth more than the music and video sectors combined.
But is Bidstack still too far ahead of the market? Is it trying to exploit a niche that does not yet exist?
One quote from the trading update will give new potential investors pause. Admitting the lack of success is “frustrating for investors”, Bidstack pleaded for more time, saying:
“The addressable market for video game advertising will go through a period of substantial change over the next three to five years.
“Giving the world’s leading advertising agencies the comfort to buy and report on this new inventory takes time and the Board believes further building blocks are still required before those revenues can be fully exploited.”
Regulatory headaches could still be on the horizon, along with all of this opportunity. The markets seems to be pricing Bidstack sensibly at the moment given the potentially vast cost of navigating advertising regulation that is still being written.
Can investors afford to tie up their capital for five years or more while the market catches up?
There is light at the end of the tunnel. December 2019 saw Bidstack unveil what could be a life-saving two-year deal with an unnamed global marketing services group, starting on 1 January 2020 which agreed £10 million of spending per year until 2022.
Draper — who is holding it all together at the moment — said he felt for investors and was disappointed none of the revenue would be recognisable in 2019, but the deal represented “a huge milestone” for both the company and implicitly for those who have kept their powder dry and held on to Bidstack shares.
Investing in the AIM market is a marathon and not a sprint, and requires faith, above all.