Feel I ought to revisit Best of the Best (BOTB) following today’s 2021 results and the shares falling 25% to £20.
I wrote about BOTB for SharePad in March and was quite bullish. I cooled a bit when the directors subsequently sold 36% of their shares after the FSP and learnt Facebook ad costs had risen 30%:
I went very cold after looking at the regulatory situation and discovering the spot-the-ball business model was dependent entirely on a sub-paragraph of the Gambling Act 2005.
Anyway, the results outlook today was a tad wobbly:
“We are excited about the opportunities that the year ahead holds for BOTB, with a recovering economy and hopefully a return to normality. However, in contrast to the summer 2020 period, we have experienced somewhat of a reduction in customer engagement since the latest easing of lockdown restrictions on April 12, 2021, specifically relating to the understandably long-awaited re-opening of hospitality and non-essential retail. We are closely monitoring this, but with our flexible model, growth strategy and plans for the year ahead, we expect customer engagement to return to normal levels before too long. I look forward to updating shareholders in due course.”
I did say in my SharePad article:
“True, these sums assume BOTB can sustain ticket sales as and when lockdown restrictions are eased… and when customers have less time and money to play spot-the-ball online.”
The sums related to a correlation (perhaps) between BOTB’s Facebook followers and revenue:
"Between 2016 and 2020, revenue per Facebook follower was remarkably consistent at around the £66 mark (green line, right axis):
But the latest interims implied revenue per Facebook follower had more than doubled to an annualised £138."
Updating that chart for the latest 2021 results gives a revenue per Facebook follower of £126 for the second half:
If we translate BOTB’s “somewhat of a reduction in customer engagement” to mean a 25% reduction from H2, then maybe revenue per Facebook follower comes to £126*0.75 = £94.
BOTB’s c400k Facebook followers would then imply revenue of £38m and, sustaining the 31% operating margin and applying tax at 19% would give earnings of about £9.6m or c100p per share.
BOTB says “we expect customer engagement to return to normal levels before too long”… but what exactly are normal levels?
Arguably the 2021 year saw abnormally high levels of engagement, and “normal” levels were experienced during 2020 and before. Are current engagement levels actually below those seen before the pandemic?
Also, I am not quite sure whether a 31% margin is appropriate for guessing current-year earnings. Facebook marketing costs have risen and I am not sure BOTB can tone down the prize pots while trying to revive player interest.