Cliq Digital AG (CLIQ) Earnings Call Transcript & Summary

Yes. So yes, that's more or less a demand-driven selling prices. You can compare with what the airlines are also doing every day, if you are looking for a ticket, yes, you have a different price more or less for the tickets. But it doesn't mean that we change the price every day to be honest. But especially in the beginning of starting a market, we are testing different price points.

So if the bundled-streaming services are your backbone, your cash cost or so to say, why did you launch cliq.de?

Well, cliq.de is also just a bundled content service. So it's the same as what we sell everywhere. Because at the end, our customers all over the world have access to those 5 content categories in our bundled content service. Cliq.de is a brand in Germany, which we launched there because it's the biggest economy in Europe and it's also a difficult market. But also there because the value for money proposition because the German audience is really an audience, which is always looking for discounts, vorteile, rabatt and a lot of content, best of alles fur kleines geld. That's really what Germany is. And cliq.de has really the rich experience where -- and in that way, we could also test new traffic sources. We tested 10 different traffic sources. And what we found out, which is, of course, not really surprisingly is the TikTok, Meta, but also B2B partnerships, partnerships with Call-a-pizza, but also with the Lidl with the New York Fashion Store right now, that is really bringing us to sales in combination also with affiliated marketing with cashback side, loyalty programs, but also voucher websites, we are doing really good sales.

Nice. So what concrete content can a subscriber expect for, I think, in the price of EUR 699, right?

Correct, yes. So I always say, at Cliq, we sell cola, but not Coca-Cola. So don't expect movies of half year old because that's not what Cliq is. At Cliq, we have a really nice content library. If you look, for example, to movies and series, we have more than 2,000 movies and series in it. On the music side, we have more than 100 music stations, playlists because at the end, most people just want to have a playlist when they want to listen to music. We have nice music concerts, but also Karaoke for the whole family. And if you look to sports, I really dare to say that we are a home of sports in Germany because we have more than 100 different sports on Cliq.de with a lot of live coverages of different leagues. On the audio book side, we have more than 200,000 audio books also in the German language. And on the cloud games and browser and PC games, we have more than 4,000 great titles with a lot of different game publishers. It's all licensed because we don't produce because that's still risky and far too expensive. That's for the other ones because it's so much content on the world next. So that's never the problem. There is so much content and all content publishers want to do business with Cliq. But also always with a localized focus, especially in Europe, in Italy, you need to have Italian movies in Germany Germans, in France, France. Therefore, the U.S. is so easy because you have access to 360 million people in one language and maybe you have to offer some Spanish content, but then you have already a big reach. But in Germany, we have, for example, also Schlager music, ZDF series, et cetera. That's the local touch we always like to bring.

Yes, there's definitely a lot of content that you can access through the subscription.

Too much content.

Exactly too much to listen to everything or to watch everything. So what I understand from this part of the interviews that Cliq in essence is not really a streamer or like a true streamer or streaming provider, but it's really more like -- you're just more like a really an excellent marketer, right?

Julia, that's right. We are a global market share of streaming. That's what we are.

Okay. Got it. So why would you say the market hasn't really understood that yet? And why do you think it is currently undervalued in its expertise? Or what do you think?

Yes, that's, of course, not up to me to say something about it. But yes, the only thing I can do is spread the use that Cliq is the global marketer of streaming and not a streaming provider. So don't compare with Netflix or Spotify please don't do that. We are a marketer of streaming. Ours not easy to understand business model, maybe especially for European investors. Because I see, if we look to the U.S. investor side, they typically understand more the direct response performance marketing model because -- yes, okay, that's maybe the characteristics set of between Europe and U.S. investor, right, maybe. Despite being listed in Germany, our main business is not generated in Germany. The listing in Germany is that happens because of the merger with a previous company in Germany. But we never look to a specific country. It is always Europe or the U.S. Yes as already told, the U.S. is our biggest market. And our focus is always on conversions, not on awareness. And that's maybe also a little bit of the problem because investors are looking for awareness. What is your brand? What is your URL? Yes, then I say, yes, we have different URLs and to be honest, there is not really a real peer list, listed peer, especially not on the German stock market, where you can compare us with.

Right. That would have been actually my next question because investors typically an analyst, for that matter as well. They always want to have like a peer group to compare you to. How would you help them if you say there is not that one peer that is really doing what you are doing in a similar fashion?

Yes, by explaining our stories and tell them our economics because they are really compelling. All our customers, members we get in always generate a gross margin in the first 6 months, because that's -- we only accept customers to subscribe to click where we think that they can be profitable at 6 months, which makes us really quite unique. We never had a loss-making customer right Cliq because that's the way we are set up. That's the way our media buyers target on their inventory to have a specific target cost per acquisition for a new customer in relation to the average revenue per user. And -- but on the other side, we are also direct marketers. So we sparked the interest of the online consumer, which also explains the high churn because at Cliq, there is always a free trial in the model. So we say always just try the product, if you like it, you stay if you don't like it, you go. And that churn is already in the business model calculate, so to get a profitable business case. You can compare us with the restaurant, we are not a fine-dining restaurant. We are more a fast food restaurant where the tables are filled 5 times a day lets say in that way. But yes, that's the way you can look at Cliq. So we are always online competing for eyeballs and there is where our competitors are, and I gave already some examples that can be in Uber Eats or an e-commerce portal, but it can also be people who are looking for all kinds of things on the Internet in daily life. People are looking for everything. And that's also -- yes, that gives us, I think, a unique position in the market, which is also reflecting, of course, in our compelling outlook we have within the company.

So Luc, can you tell us how much revenue are actually currently making at Cliq?

Well, last year, we generated more than EUR 0.25 billion in sales. And this year, for 2023, we expect revenues to exceed the EUR 345 million.

Okay. And you said that you are profitable. So how much exactly in EBITDA are you generating last year?

Yes. I thought you already -- all our customers we acquire are profitable. So also the revenues and the profits are getting in. So yes, we are a very profitable company already since the start. And in the last 4 years, our average EBITDA margin was 15%. And in 2022, it was even 16%. But we are always aiming for an EBITDA margin of 15% or higher.

Interesting. So we talked now a little bit about the past, what you achieved last year in terms of financials, but also in terms of your business model. Let's talk a bit about the future because the future is obviously everything that investors mainly look at when they do take potentially investment decision. What's your game plan going forward? And how do you plan to stay ahead of the curve to achieve your ambitious revenue targets, I think, of EUR 500 million by the end of 2025, correct? What do you want to put into action? What are the action plan that you have in your mind?

Well, first of all, I think everybody needs to trust based on our track record because myself, I'm already 20 years active in the digital industry. I sold a lot of digital content, from the joke of the day, keeps a smile on your way, to the Billboard top 100 on your mobile and now with the mobile, with the multi content services all over the world. So we have really -- we have shown and we have proven the ability that we can change. We can evolve and grow and can -- timing is very important. You always need to be there on the right moment, and that's -- yes, that's where we are good in. You don't have to be the first one in something. Following is also good. But then being there on the right time with the right team, that's key, and that's what we have proven already for 20 years. And so our business model is also highly scalable. If something works in Europe, then it also works in the U.S., especially in our area. So it's scalable. We can launch a lot of new countries or continents even without stepping away from our offices here in Amsterdam or Dusseldorf or Paris or London, because we also -- since start, we have 37 different nationalities. So all the flavor of the global market is in the company and they give us a lot of inspiration and also the right touch, which message you need to give in each country. That's really important. So we have really a great team. And then the growth in our business is always very easy. Always looking for new square rangers on the global market, countries. So opening new countries besides Europe and North America. I think it's also clear new traffic sources bring us also new consumer groups with different interests and looking for different benefits, so where the mass market is. Of course, new content I think a good example is now Artificial Intelligence. We have really great AI products in the market, not only for making a word document easier, but we are looking to entertainment, AI driven products, where you can morph your own picture into the new movie poster or be on the cover of one of the biggest magazines, just a funny moment, that one moment of fame that entertainment part. So in content, on AI, I also expect a lot of new customers in. And of course, great partnerships, which we have proven already also in Germany, with the Lidl, with the New York with Call-a-pizza. And that is really nice to see that a lot of brands want to do business with Cliq.

So it seems to me that you do have an action plan in place to get to the revenue target of EUR 500 million by 2025, as you indicated. Maybe you can elaborate a little bit on the factors that have influenced Cliq share price development in the past months? And what are your thoughts on that one?

Well, Julia, for me, it's hard to understand that really a brain cracker, but maybe it becomes of the weak macroeconomic environment currently in -- especially in Europe and also many listed European TMT companies have come under pressure this year. And -- but yes, if I talk about myself, we've really made significant progress in addressing the market concerns and we'll continue, of course, to do so by having talks with the investor community. Also our ER department is doing a lot of work on that. We provide always on time comprehensive financial reports on a quarterly basis, which even exceeds the scale listing requirements. And yes, we deliver also time and again, a strong financial performance and we will do that. We did it in the past and we will do it in the future, and we also pay dividends. So what do you like more?

That's sound great. Yes, maybe let's dive into that one actually because you said earlier that you are obviously a high-growth company, you had a CAGR, I think, 41% in sales, right? Yet you're paying dividends, which is quite rare. Can you give us some background on that?

Well, if you look to our model, that's always based on cash generation. Already since the start 20 years ago, we were always focused on cash flow generation, and that's what we still do. That's the DNA of the company. And with our model in place, we are also able to generate significant free cash flow and we were always able in the growing stage also to pay our debt, and currently are pretty proud of the fact that we are debt free. So -- and every year, we closely review, of course, our dividend policies. But in the last 4 years, we distributed more than 40% of net profit and without influencing our sales growth part.

Well, very rare. Usually have either high growth, no dividends, especially the tech sector where I'm quite familiar with or you have like not so high growth in the dividend. So very interesting that you cater to both. What are your thoughts on share buyback program?

Well, yes, if you look to share back every year, we have, of course, that type of discussions. But management continuously reviews all the possibilities, to get all kind of value creative capital allocation options in place. So now we said, okay, the dividend is the way to go. And yes, and that's -- furthermore, it will also reduce already small market capital liquidity in my opinion.

Okay. Understand. So maybe we dive a little bit more into your investor communication? And how do you best communicate with your investors?

Of course, we have a great IR team in place, which is always very active. We have a lot of interesting information, I would say, on our IR website where you can find all the information about the company and also a lot of information about the business modeling. There's even -- I would recommend there is a movie of the consumer journey on the website. So I would advise to everybody go please to the IR section of our website. We are doing always new initiatives. And of course, we visited a lot of shows. For example, the last period, we visited more than 20 investor shows. We have quite a lot of new number of new U.S. investors in place. We are intensifying our efforts to explain our business model, of course, in more detail. Now I already told you this interview is also a way to go. And yes, we are always trying to expand our communication channels to tell the great Cliq story.

And I have to say, I mean, as I was doing was in research on you. I really like the way that your website structured and it's -- you already have a lot of interactive elements on it, like videos and like little charts and so and you're already doing a really good job, and I like that you're also now engaging in these kind of interviews to kind of explain the story even better to a new audience, what you're also doing within your business model, right, trying to go channels and so something great efforts. So you mentioned that you want to reach more margins at Gen Z investors. And you -- they're obviously renowned for their commitment to sustainability and ESG matters, right? And it's a very important matter in general. And you've also set yourself ambitious goals to achieve carbon neutrality by the end of 2029. So can you walk us a little bit through the steps that Cliq Digital is taking to offset or eliminate CO2 emissions?

Yes. Well, it's indeed a very important topic. Of course, I see it also internally within Cliq. Environment -- all those elements are very important, to stipulate to everybody, but also for the investor side. And so we have introduced a very sustainable practices in place to just sourcing sustainable goods and promoting eco-friendly initiatives. And we also started now a group-wide sustainability project that will take place at the end of this year or start at the end of this year and also in 2024, which was helping us to reduce our carbon footprint in general. It's really an integrated approach where we also take everybody within Cliq with us in that type of -- in this project.

Yes. I think it's also important to get the whole company involved, right? It's not just something that is on the top, but really -- and we look at your background, right? If you're already living on green in that sense. So how do you ensure your content quality and parity is engaged enough for the Gen Z because they obviously have a much shorter attention span. Gen Z is having like a slightly different preferences in there -- in the content. How do you ensure that this is kind of up to date to their desires?

Well, basically, we have something for everyone. So in each of the 5 content verticals, we are connected with a lot of content suppliers. So via APIs, that's a technical term, of course, we have more or less direct access to their content. And so we have a lot of different suppliers. So there is always via those different suppliers in each content vertical, we have more than 5 to 10 different suppliers worldwide with country wise but also global wise. So we always have something for everybody. That's also the slogan in Germany, best of Alles. There's a lot of content to [indiscernible] . So we have films for all kind of [indiscernible] with music for in all kind of moods and tastes, concerts, Karaoke, for the diehard fans when you're sitting with your family, after dinner to do some Karaoke. If you are in the train to listen audio book for all agents from kids to female-oriented or male-oriented audio books, and of course, a lot of sports and games availability. And also nice now in October, we also launched likes us in Germany, which is more or less Big Brother, but now in the current -- yes, with a modern flavor. So with a lot of influences in the house and this is also a very interesting project and test for us to see how that works on TikTok, where also the stars in like us, also promote products on their channels on TikTok, Facebook and Instagram. And of course, we are also very active ourselves on the socials.

So you definitely seem to have a game plan on how to tackle the next generation of customers, but also of investors?

Yes, we are already there.

Very good. So I definitely learned a lot on your business model on the stock or new equity story and now to round it up from your mouth, with your words, like why would some invest? Why should someone invest in your stock?

Well, first of all, everybody should do his or her own research, of course, and not -- and then take the investment decision. But in a nutshell, I would say, if you invest in Cliq, you get access to a profitable growth company in a business, which will continue growing. We are a real cash machine, and we pay every year dividends. But most of all, the product we have and as a global marketer of streaming, it's also cool and to be a marketer of a cool product. We are a likable products. People like to talk about when they are with friends and have a drink at the bar. And every day, when I walk to the office, I really like to walk to Cliq, go to the office because we have a great team of 37 different nationalities. We have an international workforce. The market is global and that's what I like. And yes, who does not want to be part of that unique business model, I would say, of that unique team.

I can definitely see how passionate you are about the business. A lot of entrepreneurs per that I saw in this interview, Luc, thank you so much for this interview. It was very insightful. I learned a lot, and I'm sure our audience did as well. And I hope to see you soon again in another interview.