Storytel AB (publ) (STORYB) Earnings Call Transcript & Summary

Thank you very much. Yes. This is Jonas Tellander, CEO and Founder of Storytel. And with me on this call, I have our interim CFO, Jörgen Gullbrandson; and our CCO, Chief Commercial Officer, Ingrid Bojner. So if you go to the next slide, we can see that we have a very, very strong revenue growth. It's 45% now in Q4 2019 compared to Q4 2018. I mean this is -- most of this is driven from the Nordic market. I think 38% of this is from the Nordic market and 7% from the non-Nordic market. And the subscriber growth drives a lot of this, but then also we have an ARPU improvement that has really boosted revenue. So this is a high -- really high number for us. Next slide, please. If you look at the other highlights in the report, I mean, again, the leading targets for us is subscriber growth and revenue growth for our Streaming business, and that's looking very, very strong now. And then we can see that the contribution margin is also moving upwards to 14% now from 10% a year ago. And EBITDA margin, we have communicated a range of minus 14% to 16% for 2019 already early last year and then we corrected that range to 16 -- minus 16% in the Q3 report, and now we ended the year on minus 15.7%. So that's all in line and the Q4 was even a little bit better than that. And then we also refinanced our bank loans and extended the credit at Swedbank during the quarter, which we're very happy about. So I'll now hand over to Jörgen to talk about the details of these numbers.

Thank you, Jonas. Next slide, please. So looking at the details of the report, you can see that here's the development quarter-on-quarter for the last 5 quarters. As Jonas said, the revenue came in at SEK 421 million, up from 299 -- SEK 291 million a year ago. Good development, but even better when you look at the contribution profit at almost SEK 59 million, which is almost doubling the contribution profit we had a year ago. With a growing revenue, you don't get a doubling of the contribution margin, but it's up to 14% compared to the 10.4% a year ago. The paying subscribers, you see that, and we have communicated that before as well, 1.083 million as an average for the quarter, and we reached 1.1 million, as you know, on Christmas Day. The ARPU development, is seen definitely in the numbers and in the graph, the positive improvement coming from the VAT decrease in Q3 2019. We maintained this high level for Q4 2019 as well, coming in on a group level of SEK 130 per user. If you break it down, looking to the segments, we present the Nordic countries, the bigger and the more profitable region. You can see that we come in at SEK 352 million compared to the SEK 259 million. Also a good contribution profit. It is where we make the money and a margin of almost 33%. I believe we can say it's the highest we've seen in the group. This is also for the ARPU, SEK 155 in the Nordic countries, which I believe is an all-time high. Looking at the non-Nordic countries, the ones that grow a bit quicker than the I wouldn't say mature markets in the Nordic, but more mature markets at least, where we saw a doubling in the revenue from Q4 last year until Q4 this year. The contribution profit is a negative one because this is where we invest in many new restarted markets. But however, the contribution -- the negative contribution profit is on the same level it was a year ago, which means that the margin is much, much better in half the loss that we did last year. Also great to see that we have a customer base in the non-Nordic countries now up to 326,000. It's a big number. It's really growing and becoming substantial in the group. Looking at the ARPU as well. The ARPUs in these countries are lower, as you know, and it's great to see, but actually, the ARPU is increasing over time. And that the price increases that we do and continue to do actually do have an effect. The -- our guidance for the Q1, the forecast, new for this report, as you might have seen, we believe we will continue to grow our revenues to SEK 438 million in Q1. The good development here is when you compare to Q1, Q4 last year's shift, we had almost no growth on the group level on the SEK 4 million growth because the Q1 is usually a weaker quarter. However, this year, we definitely think that we'll grow another SEK 17 million. So it's a positive shift, and we had a good speed in the group. This growth in many ways comes mainly from the non-Nordic countries where see the more substantial growth, possibly relative to the increase in ARPU levels that we foresee, yes, and expect for Q1, even non-Nordic countries of SEK 73, mainly driven by the price increases that were done in Q4 and also done in Q1 2020. Next slide, please.

Yes. And if you summarize the guidance that Jörgen told you about, that adds up to a 48% annual revenue growth for Q1 and a 38% subscriber growth. So that's extremely strong. And it's not something we expect to keep throughout the year. We expect still to land closer than the 35% guidance we have. And the reason we are currently very high is the substantial VAT decreases that were reductions that we saw in Q3 last year. But again, a very, very strong guidance, and we're very proud of that. So let's take a look at the other financial targets and how that develops over time on the next slide.

Thank you, Jonas. So just looking back to the financial targets we had for 2019. And I'm pleased to say that we delivered on all of them, reaching the 1.1 million subscribers as we did on Christmas Day. The revenues are in line, the growth as well. And the -- even though negative EBITDA came in below what we guided at 16%, reaching then at 15.7%. Also worth noting that Q4 was actually 14.6%, so better than yearly average. We did reach Streaming profitability on more than 1 market, and we did our launches, as Ingrid will tell you about soon. Looking at the target for 2020. What we know now and the target we did for Q1 does not make us restate that. We believe in it. So these are the same numbers you've seen before. We should reach 1.5 million. We should reach between SEK 1.9 billion and SEK 2 billion in revenue. The EBITDA margin will improve from the minus 15.7% now to between 10% and 12% negative. This is using same accounting methods as we've done in the past, so this is like-for-like numbers. And we will also sure reach the profitability in at least 2 markets, maybe 4 and launch in at least 1, maybe 3 markets. Our long-term plan is also the same as we've done before. So we believe we will reach 40% on paying subs at least, 35% in revenue, and we'll do this with still good KPIs, customer lifetime value versus acquisition costs and will launch in another 20 markets. Next slide, please.

Okay. So how are we going to reach our targets? We look primarily at the CLV versus SAC calculation. And what are we doing then to reach the guidance that we have put forward? Well, we're going to do a heavy improvement on the gross profit continuously, with 4 markets having increased prices during January and February. And we have also been helped by a recent reduction in VAT in both Holland and Germany starting this year. The tech team and department, combined with the customer team, are working towards the longtime value for the customers in terms of lifetime with large improvements on the feature side that are coming out during the year. So we hope to improve also the CLV that way. Then not least, we have the SAC development, which is continuous improvement and optimization of our marketing efforts. Next slide, please. And then looking at what we did last year in terms of new market launches, we launched 5 markets compared to 2018, when we launched 6 markets. And we are projecting to launch the 20 markets during the next coming 3 years. Next slide, please. So if we look at historic launches of different countries, you can see that over time, we reached profitability. And this is a combination, of course, by a scale effect in the market as well as improvements and virality effects in the customer side and also improvements on the lifetime of customers that keep on playing with us and our service. So looking forward, we have Poland, Finland and Russia that are markets that we are assuming that we are going for profitability for this year and next year. And so we have had a guidance of 1 to 3 more profitable markets for this year. Yes.

Very exciting. Thank you, Ingrid. Go to the next slide, please. So looking at the market opportunity for Storytel, we are very bullish. We see that the audio revolution and audio trend continues to be incredibly strong and helpful for us. For the coming 10 years, we expect the overall audiobook market in the world to grow by 15% annually. And Storytel should be able to take a good market share on that growing market. We currently have a market share of 5% globally. But if you look at the non-U.S. markets, we have a market share of about 15%. So we expect most of the growth to come from outside of the U.S. and hereby having Storytel capturing a 15% to 20% share of that market growth. So this looks for a bright future. We do hard work every day to make sure that we have people loving, enjoying audiobooks around the world and hope to be doing that for many, many years to come. So next slide, that's it for our presentation, and we now move over to a Q&A.

[Operator Instructions] The first question comes from the line of Derek Laliberte from ABG.

Congratulations on a strong end to 2019 and also a very good start to 2020. My first question, I was wondering if you could give some more details around the factors affecting the positive development in the contribution margin in the quarter in the Nordics. If you could break it down on how the market share of listens has developed as well as the reduced VAT effects from that and marketing spend.

Yes. So thank you, Derek. I think you are correct. I mean the contribution margin improvements come from -- I mean one part of it is, of course, the price increases -- or inflated price increases that came from the VAT reductions in Q3. And then we've seen some improvement also on the gross margin and the content cost deriving from a better product mix and a better profitability on some of our accounts. And then we've seen also that in the summer season of Q3, our marketing costs are very, very high, and then they dropped down a bit in Q4. So it's natural a little bit lower marketing spend in Q4. But overall, very positive and also comparing to last year, very, very positive.

Okay. And then secondly, could you give some more flavor around how each of the individual Nordic markets are performing? So how does it look around Sweden, Norway, Finland and Denmark and Iceland?

Yes. I think I will start with Denmark. We -- as presented last year, we did a consolidation of our platforms that we have in Denmark with the Mofibo being our strongest brand and also our platform change towards historical tech platform. So we are continuing to have a strong result in our Danish market. And we see a continued strong development in the Icelandic market. As you can see, that is a recent market we launched that is already a profitable market to us. So I would say that we have a strong performance across the whole Nordic book.

Okay. And finally from me then, more on a general note here. What would you say are like the biggest risks to these long-term financial targets that you have? Is it related mainly to competition, to the competition landscape or being able to access content in the same way as now or more of a general audiobook penetration sort of where that will help?

I mean I think if you look really long term, we see, I mean, mostly opportunities in the sense that we are heavily weighted towards the audio consumption and audio revolution. But in that space, there's also competition. I mean you have podcast platforms growing stronger and stronger and a lot of the creative talent being invested into those -- the contents of those platforms. I think that for the book industry, in general, it's important to stay relevant and focused on the top talent -- creative top talent, which always has come to the book industry, but it may not be a given that they continue to do that, but come -- go elsewhere to podcasting platforms. So for us, it's important to be also somehow present in that space, in the storytelling part of that space and make sure that we keep having a relevant content and good work.

The next question comes from the line of Oscar Erixon from Carnegie.

First question is on Sweden. I know you discussed the Nordics more in general terms, but could you sort of describe a bit how subscriber growth is developing in Sweden, given quite strong growth and increasing size of your local competitors?

Yes. Thank you for that question. Yes, I mean, we continue to have a very strong market position in Sweden. There's been some statistics coming out from the Publishers' Association and Booksellers Association, and we keep being a strong market leader with about 2/3 of the overall market. So I think that's very positive. We see also that the book market is now really pivoting from a fiscal market into a digital market, in particular, in the adult section segment. So the growth -- there is underlying subscriber growth still in Sweden for Storytel. It's a double-digit growth still. And we're hoping to keep it that way but need to stay very relevant and focused to make that happen also. So I think Ingrid has some other thoughts on this.

Yes. So I think we have actually reached a very important milestone during the fall with the 400,000 subscribers in the Swedish market. So we continue to see positive growth. And we know it's a more competitive market that we have, but we have a strong presence, and we continue to work with our content to develop it at a continuous pace.

Great. And 2 other market-related questions. Can you discuss how the launch has been in Germany, which is quite a particular market, I guess? And also just very quickly, describe what markets are performing the best outside of the Nordics. Is it still Turkey, Mexico, those that have performed well previously?

Yes. I mean we don't normally comment too much on the details of all our markets. But with regard to Germany, I think it is a similar stage to South Korea that we're building up the market right now in the content offering and preparing for a bigger rollout, but we haven't really gotten to that big marketing spend time point yet. And in terms of the best top-performing market, maybe Ingrid could share some interesting flavor on that.

Yes. I think as we also wrote in our yearly report, it's all about the local product marketplace that we continuously work on. For us, it's very important to start with the content, making sure that we have something that's relevant for the local customers and then pairing that with the payment system that works best in the country. And then when we start exploring our marketing opportunities, we can see that in some countries, as we also spoke about on the Capital Markets Day, the way people consume our product is very local. And secondly, they may differ a little bit between markets. So for example, in Russia and Turkey that we spoke about on the Capital Markets Day, there's a heavy shift towards really wanting to learn something from listening to books and audiobooks. So that's something also we then work with on a local level to power the content on the best way. And this is how we work with every market that we go into. And I think we will not be able to comment even more deeply, but yes.

But, yes, I mean, you should basically look to our more -- I mean, the markets that we are in profitability on or expect to come into profitability on and those are the locomotives for most of our top line growth in the coming year.

Great. Very clear. And a final question, and I'll leave it. But a final question. Penguin Random House, you've discussed a bit before at the CMD, but obviously they withdrew their Anglophone and Spanish content from unlimited streaming services. Is -- do you consider English content important in market launches specifically? Or do you see it as a non-event? Would be great with some more insight there.

Yes, great question. I mean Penguin Random House, yes, they withdraw from all the streaming services globally here a month ago. And to us, for their English content catalog, it's very small impact and effect on the consumption because 85% of the consumption is local language and only 10% to 15% is English language and Penguin Random House is a small subset of the English part. So doesn't really have a huge effect. But in the Spanish region, of course, they have a strong position and a lot of the content that's being consumed there is from one of the publishers. So I think the -- just like with Netflix, 6 or 7 years ago when we saw some of the major labels withdrawing from their service, you saw them investing more heavily into their own content catalog. I think that's kind of where you're pushed, as a streaming company, to go in terms of investing more. So we'll see more investments in Storytel original content in the Spanish region going forward.

The next question comes from the line of Hjalmar Ahlberg from Kepler Cheuvreux.

Maybe a follow-up on -- you discussed the local content being a key. Again, when launching a new market and being successful, how do you see competition developing? Are they trying to replicate this or is it difficult to do that?

Yes. Thank you. I think having a strong position and a strong brand name also in the publishing industry is something really good for us. And also owning publishing houses, that makes us relevant and trustworthy as a partner for building up content locally. I don't want to comment exactly on how that competition is thinking, but I can clearly see that we are the most local streaming service when it comes to audio. And this is a road that we believe is the right road to go.