MIG’s social media platform is targeting the rapidly growing mobile internet markets of South-East Asia, and in particular in Indonesia, the Philippines and India, where there are expected to be ~442 million social media users by 2018. The platform allows users to participate as themselves or, because of cultural or other issues, a user can create a fictional identity and use this to interact on the migme platform. Users are able to interact with like-minded people, to form communities and to engage in dialogue with artists and celebrities. MIG uses a freemium model and converts members to paying users by selling virtual gifts and premium game features. MIG is now conducting a launch campaign for social commerce, which will allow C2C, B2C2C and B2C social e-commerce. By creating a social network, MIG has developed communities that through interaction trust each other and are therefore prepared to engage in commercial transactions.
By taking a different approach to the more established Facebook, and by being a first mover in its chosen markets, MIG has established a user base of over 32 million monthly active users (MAU) and has a track record of increasing monetisation rates.
The journey so far shows ‘runs on the board’
MIG listed on ASX via a shell company (Latin Gold [ASX: LAT]) in June 2014 following the relaunch of MIG’s platform (formerly a closed platform) as an open mass-market social entertainment platform offering chat, mini-blog, virtual gifts and games. The listing was accompanied by an A$8m capital raise (40m shares at A$0.20 per share). The Disclosure Document states that the existing core of members (MAU) was 3.2 million with very little revenue.
Since the listing MIG has attracted an additional 29 million users (total MAU was 32 million at 31 December 2015) and raised A$26.7m after capital raising costs and increased monetisation levels 2.2x faster than the growth in MAU. At the same time, operating costs have been contained. Cash receipts have grown 2.9x as fast as the growth in costs. The quarterly cash statement for FY15 shows an operating cash flow deficit for the year of A$17.1m.
In our view, significant progress has been made:
■
22 million users have been added in 12 months, an annual growth rate of 220%, which is comparable to other successful network effect social media platforms.
■
The rate at which users are being added to the platform continues to accelerate and as more products and revenue earning opportunities such as games are added, we expect increased MAU and increased monetisation rates.
■
Cash receipts are now more than A$5m per quarter (A$5.4m in Q415).
■
During FY15 operating costs increased from A$4.4m per quarter to A$10.6m per quarter as the company embarked on its strategy of developing new territories, in particular in India.
■
Capital raises done throughout FY15 have been sold at significantly more than the A$0.20 per share IPO price. The A$10m capital raise in Q315 was priced at A$1.00 per share and the placement to Meitu on 3 March 2016 has been made at A$0.60 per share.
These numbers do not include the social e-commerce opportunity nor the impact of the Meitu joint venture, which should have a positive impact on the FY16 numbers.
Exhibit 1: Cash flows Q414 to Q415
|
Q414 |
Q115 |
Q215 |
Q315 |
Q415 |
Total |
Monthly active users (MAU) (millions) |
10 |
14 |
19 |
24 |
32 |
5 quarters |
Growth in users (per quarter) (millions) |
|
4 |
5 |
5 |
8 |
|
Cash receipts (A$000) |
565 |
1,125 |
2,201 |
3,717 |
5,393 |
13,001 |
Cash operating costs (A$000) |
(4,288) |
(4,365) |
(6,409) |
(8,117) |
(10,603) |
(33,782) |
Net operating cash flows (A$000) |
(3,723) |
(3,240) |
(4,208) |
(4,400) |
(5,210) |
(20,781) |
Net investing cash flows (A$000) |
(275) |
326 |
(67) |
(17) |
(167) |
(200) |
Net financing cash flow (A$000) |
10 |
13 |
6,564 |
9,660 |
3,410 |
19,657 |
Net increase (decrease) in cash (A$000) |
(3,988) |
(2,901) |
2,289 |
5,243 |
(1,967) |
(1,324) |
Cash at beginning (A$000) |
9,681 |
5,926 |
3,172 |
5,389 |
10,766 |
|
Exchange difference (A$000) |
233 |
14 |
(72) |
134 |
(141) |
|
Cash at end of quarter (A$000) |
5,926 |
3,172 |
5,389 |
10,766 |
8,658 |
|
|
|
|
|
|
|
|
Growth in MAU (q-o-q) |
|
40.0% |
35.7% |
26.3% |
33.3% |
|
Growth in cash receipts (q-o-q) |
|
99.1% |
95.6% |
68.9% |
45.1% |
|
Growth in operating costs (q-o-q) |
|
-13.0% |
29.9% |
4.6% |
18.4% |
|
|
|
|
|
|
|
|
Compound quarterly growth rate: |
|
|
|
|
|
|
Users |
33.8% |
|
|
|
|
|
Cash receipts |
75.8% |
|
|
|
|
|
Cash payments |
25.4% |
|
|
|
|
|
Source: MIG data (Appendix 4C quarterly lodged with ASX and management comments lodged with 4C), Edison Investment Research calculations
Our forecasts previously underestimated both revenue and costs. The industry revenue share model for artist and games providers is a 50/50 share. However, during FY15 MIG’s focus has been to establish its artist stable and to work with record companies to ensure that artists see the benefits of being part of the MIG community. Costs included promotion of artists’ products and an augmented revenue share (ie above 50%, which is MIG’s long-term benchmark for revenue share). These actions resulted in negative gross profit in FY15 as MIG worked to develop its platform and to build its MAU and its monetising users. We understand that it is MIG’s intention to wind back these costs and to increase the gross profit margin over time.
Over time we expect that MIG will be able to reduce the revenue share with artists and games developers because of the number of users and the revenue earning opportunities available to artists and games providers. Our forecasts (discussed below) show a gross profit margin from the core social media business (excluding e-commerce) of 45.2% by FY18.
Exhibit 2: FY15 actual vs estimates
(A$000) |
Actual |
Edison estimate |
Variance |
Revenue |
12,299 |
8,995 |
3,304 |
Cost of goods sold |
(13,043) |
(4,497) |
(8,546) |
Gross profit |
(744) |
4,497 |
(5,241) |
EBITDA |
(21,021) |
(12,108) |
(8,913) |
EBIT |
(20,930) |
(12,145) |
(8,785) |
Net interest |
(20) |
115 |
(135) |
Profit before tax |
(20,950) |
(12,030) |
(8,920) |
Tax |
(3) |
3,609 |
(3,612) |
NPAT |
(21,043) |
(8,421) |
(12,622) |
Source: MIG data, Edison Investment Research. Note: Actual revenue includes other income of A$114,700.
Forecasting the rate at which users are added, the number of users who will monetise and the amount spent per user is a difficult exercise because it requires a judgement call on the acceptance of the social media platform by users in three developing countries. After MIG’s operational experience of between 12 and 18 months there is not sufficient data available to increase our confidence levels in our forecasting ability. This means that it is very probable that actual results will be materially different from our forecasts. Such forecasting error should be taken into account in assessing the risks inherent in the business model. Assessing tastes and preferences in a rapidly evolving marketplace where there is no history of similar business models being employed adds to the degree of difficulty.
We have amended our forecasts to reflect a reduced gross profit margin, higher operating costs and the inclusion of the e-commerce business. Details of our forecast changes are set out below.
Exhibit 3: Forecast changes
(A$’000) |
2016e |
2016e |
2016e |
2017e |
2017e |
2017e |
2018e |
2018e |
2018e |
|
Old |
New |
Variance |
Old |
New |
Variance |
Old |
New |
Variance |
Total Revenue |
33,176 |
45,962 |
39% |
66,022 |
103,925 |
57% |
110,776 |
171,734 |
55% |
Cost of goods sold |
(16,588) |
(40,398) |
144% |
(33,011) |
(71,001) |
115% |
(55,388) |
(110,730) |
100% |
Gross Profit |
16,588 |
5,564 |
(66%) |
33,011 |
32,924 |
(0%) |
55,388 |
61,004 |
10% |
EBITDA |
(1,540) |
(16,320) |
NM |
13,779 |
9,940 |
(28%) |
34,964 |
37,173 |
6% |
EBIT |
(1,575) |
(16,363) |
NM |
13,747 |
9,900 |
(28%) |
34,955 |
37,135 |
6% |
Net interest |
184 |
(87) |
NM |
265 |
(201) |
(176%) |
598 |
336 |
(44%) |
Profit before tax |
(1,391) |
(16,450) |
NM |
14,012 |
9,699 |
(31%) |
35,552 |
37,471 |
5% |
Tax |
417 |
(16,450) |
NM |
(4,204) |
(2,910) |
(31%) |
(10,666) |
(11,241) |
5% |
NPAT |
(974) |
4,935 |
NM |
9,808 |
6,789 |
(31%) |
24,887 |
26,230 |
5% |
EPS (cents per share) |
0 |
(4) |
NM |
4 |
2 |
(36%) |
9 |
9 |
(4%) |
Source: Edison Investment Research
The table below provides details of revenue and EBITDA per segment.
Exhibit 4: Forecast segments
A$m |
|
|
2015 |
2016e |
2017e |
2018e |
Core social media |
|
|
|
|
|
|
Revenue |
|
|
12.2 |
37.8 |
73.1 |
115.4 |
Other revenue |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
Total Revenue |
|
|
12.2 |
37.8 |
73.1 |
115.4 |
|
|
|
|
|
|
|
COGS – Fixed |
|
|
(3.3) |
(3.9) |
(4.0) |
(4.2) |
COGS – Variable |
|
|
(9.8) |
(29.6) |
(41.0) |
(59.0) |
Gross Profit |
|
|
(0.9) |
4.3 |
28.1 |
52.2 |
Marketing costs |
|
|
(1.9) |
(2.2) |
(2.3) |
(2.4) |
Labour costs |
|
|
(10.4) |
(11.9) |
(12.5) |
(13.0) |
Operating costs |
|
|
(4.6) |
(5.9) |
(6.2) |
(6.4) |
Total costs – exc e-commerce |
|
|
(17.0) |
(19.9) |
(21.0) |
(21.8) |
EBITDA – SM |
|
|
(17.8) |
(15.6) |
7.1 |
30.4 |
Gross Profit % |
|
|
-7.0% |
11.3% |
38.4% |
45.2% |
EBITDA % |
|
|
-146.2% |
-41.3% |
9.7% |
26.3% |
E-commerce |
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
C2C |
|
|
0.0 |
0.1 |
0.3 |
0.4 |
B2C |
|
|
0.0 |
8.1 |
30.6 |
55.9 |
Total revenue |
|
|
0.0 |
8.2 |
30.9 |
56.4 |
COGS |
|
|
0.0 |
(6.9) |
(26.0) |
(47.6) |
Commission C2C |
|
|
0.0 |
0.1 |
0.3 |
0.4 |
Margin – B2C |
|
|
0.0 |
1.2 |
4.6 |
8.4 |
Total e-commerce EBITDA |
|
|
0.0 |
1.3 |
4.9 |
8.8 |
Total EBITDA |
|
|
|
|
|
|
Social Media |
|
|
(17.8) |
(15.6) |
7.1 |
30.4 |
E-commerce |
|
|
0.0 |
1.3 |
4.9 |
8.8 |
EBITDA before share-based payments |
|
|
(17.8) |
(14.3) |
11.9 |
39.2 |
Share-based payments |
|
|
(3.0) |
(2.0) |
(2.0) |
(2.0) |
EBITDA after share-based payments |
|
|
(20.8) |
(16.3) |
9.9 |
37.2 |
EBITDA after share-based payments (%) |
|
|
-170.7% |
-35.5% |
9.6% |
21.6% |
EBITDA – core social media (%) |
|
|
-146.2% |
-41.3% |
9.7% |
26.3% |
EBITDA – e-commerce (%) |
|
|
N/A |
15.8% |
15.8% |
15.6% |
% EBITDA – Social Media |
|
|
100% |
109% |
59% |
78% |
% EBITDA – e-commerce |
|
|
0% |
-9% |
41% |
22% |
Source: Edison Investment Research
MAU growth in perspective
The chart below puts MIG’s early growth rate in MAU in perspective. In our view, MIG’s growth needs to continue at similar rates to other social media sites such as Facebook, Twitter and TenCent’s WeChat.
Exhibit 5: MAU growth peer group and MIG
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Year 6 |
Year 7 |
Facebook |
260% |
69% |
39% |
25% |
22% |
5% |
18% |
Twitter |
117% |
58% |
30% |
20% |
6% |
|
|
WeChat |
168% |
125% |
41% |
30% |
|
|
|
Qzone (TenCent SNS) |
31% |
8% |
9% |
4% |
5% |
|
|
migme |
220% |
116% |
58% |
35% |
24% |
|
|
Source: Statista and Tech Asia (for WeChat), TenCent for Qzone, migme actual for year one and Edison Investment Research forecasts for years two to five
The chart below provides an indication of the ‘inflection point’ (the point at which there is a sharp increase in the number of MAU) for social media/e-commerce sites by tracking monthly MAU. The inflection point is somewhere between 21 and 24 months. MIG will enter its 24th month in July 2016. Our forecasts show profitable operations from FY17, however, we caution that the amount of profit will depend on the number of monetising users, the amount spent per monetising user and the gross profit margins from the core social network business as well as the success or otherwise of the social e-commerce venture.
Benchmarking the point at which the ‘network effect’ (the inflection point at which growth feeds growth in users) on social media platforms kicks in is relatively subjective. However, looking at the early years (from the point at which they reached 20m MAUs) for larger peers in Exhibit 6, MIG’s MAU growth is tracking well. In the first two years of scaling beyond 20m MAUs, Facebook, Twitter and LinkedIn for instance all added c 10m MAUs a quarter, and there were signs that the network effect kicked in approximately two years later at approximately 100m MAUs. Over the last four quarters, MIG has added 22m subscribers, an encouraging trend. Hence, we are forecasting a user growth trajectory only lagging behind Facebook but superior to Twitter, LinkedIn and eBay.
Exhibit 6: Social media platforms’ growth in MAU (on monthly basis)
|
|
Source: Company data. Note: X-axis is number of months. In each case zero is taken as the point at which there were c 15 million users.
|
From the outset the MIG vision has been:
■
to build a platform that would strike a chord with users in Asia and therefore would attract and retain users who would form trusted communities.
•
Key features included the ability to interact with local popular artists, the ability for users to become the person they want to be via the use of an avatar and linkages with likeminded people to form communities in which users interact and build a network of trust.
■
To focus on SE Asia, firstly Indonesia, then the Philippines and India.
■
To provide artists with a way to monetise their products by sharing revenue generated by the MIG platform with the artists; this has the effect of attracting more artists to the MIG platform.
■
To ensure that users are able to pay either by using pre-paid options or via a payments processing system.
■
To take advantage of the explosion in low-cost mobile phones.
■
To enter into pre-install arrangements with mobile phone manufacturers (like FIH, a subsidiary of Hoi Han Group).
MIG took its lead from successful sites in China such as TenCent (HK: 700) that combine chat, games and e-commerce. TenCent has more than 650 million MAU.
In our view, MIG has proved its business model. It has proved that it can build a social network community of some scale in three separate countries in South-East Asia and build the organisation to a 200-person strong team operating across the three territories. MIG has been able to do this because it has been successful in signing content and distribution agreements that build the membership base and engaging with artists and games providers. It has been successful in developing virtual gifts and upgrades that entice users to monetise.
We see the relationship with FIH Mobile, a subsidiary of Hoi Han Group, one of the world’s leading smartphone handset manufacturers as of strategic importance because it provides MIG with a cornerstone shareholder (it owns 19.9% of MIG) and a valuable contact in Asia that is able to bring MIG additional contacts and relationships as well as provide pre-installation opportunities for the migme app. The announcement on 3 March 2016 of a Memorandum of Understanding (MoU) with Meitu (>900m MAU of whom >100m are outside China) is an example of the power of relationships. FIH has a joint venture with Meitu (announced in May 2015) and it is likely that the Meitu doors were opened to MIG by FIH.
We also think that MIG has demonstrated that the freemium model can lead to significant revenues (the revenue run rate is currently A$21.6m) just from the sale of virtual gifts and premium activities. In our initiation note (Social media for the next 3.5 billion, 18 December 2014) we noted that the keys to success were “driven by MIG’s ability to scale its user base and increase average revenue per paying user (ARPPU) while keeping costs in check”. ARPPU was initially disclosed by MIG but has not been provided for the last three quarters. The rate of increase in cash costs (a compound quarterly growth rate of 25.4%) has been significantly lower than the increase in cash receipts (growth of 75.8%).
MIG’s strategy now is to:
■
Continue to build the number of MAUs – By 2018 MIG’s management plans to have a significant market share of the 442m social media users in its target markets. Our base case forecasts assume that MIG will have captured ~33.3% market share.
■
Continue to add content through agreements with artists and key opinion influencers (KOI).
■
Continue to incentivise artists via a model whereby MIG and the artist share revenue generated on the platform; MIG expects to wind the revenue share back to 50% over time (we estimate that the current revenue share for artists and games providers at close to 90%).
■
Ensure that the payments network is in place to provide a framework that is able to facilitate commercial activities.
■
Launch social e-commerce by bringing an online shopfront to the user community.
MIG’s e-commerce strategy is designed to take advantage of its MAU and their interests. The core social media business earns revenue from selling virtual gifts and premium features on games and the like. It should be noted that successful games hold the key to any ‘hockey-stick’ style increase in monetisation levels in the core business. Management expects the games platform to be launched in its final form in Q216.
MIG has established communities linked by common interests, joined by their interactions with each other and with the artists that have signed onto the MIG platform. These common activities provide a platform for MIG to launch an e-commerce business. MIG’s e-commerce platform will provide an opportunity for MAUs to transact business with each other (consumer to consumer [C2C], like eBay, where MIG will earn a commission) and to buy goods (such as merchandise from artists, DVDs or concert tickets) from third parties that join the migme platform (business to consumer, where MIG expects to earn a margin of 15%).
We have included the revenue and costs reflecting the social e-commerce strategy set out in the company’s release to the ASX on 23 February 2016. We have made the following assumptions:
■
2% of MAUs engage in e-commerce from H216. This proportion of MAUs remains unchanged for the forecast period.
■
The gross spend per business to consumer (B2C) user starts in H216 at A$40 pa and increases by 3% every six-month period. E-Marketer (Exhibit 7 below) forecasts that, in South-East Asia, e-commerce shoppers spend on average US$0.5-1.2k a year in 2016 (note this includes Asia Pacific and hence Australia). Our starting point of A$40 implies a 4-6% share of an online shopper’s annual gross digital spend in India and Indonesia.
Exhibit 7: E-commerce spend
US$ per digital shopper (B2C) |
2014 |
2015e |
2016e |
North America |
2,542 |
2,695 |
2,937 |
Western Europe |
1,998 |
2,120 |
2,222 |
Asia-Pacific |
1,057 |
1,123 |
1,179 |
India |
691 |
708 |
724 |
Indonesia |
437 |
480 |
516 |
MIG per capita spend (US$0.71/A$ for A$40) |
|
|
28 |
% of annual digital shoppers in India |
|
|
3.9% |
% of annual digital shoppers in Indonesia |
|
|
5.5% |
■
The gross spend per C2C user starts at A$20 pa (although we expect the EBITDA contribution from this channel to be small, see Exhibit 8 below) and increases by 3% every six-month period thereafter.
■
A 2% commission earned on C2C business; we understand that the possible commissions range from 1% to 5%.
■
A 15% margin on B2C business with costs borne by the business (third party).
■
No additional costs are incurred in operating the e-commerce business
We will revisit our revenue and cost assumptions after e-commerce initiative is launched in H216 and more information becomes available.
Exhibit 8: MIG’s e-commerce revenue and EBITDA
A$m |
2016e |
2017e |
2018e |
C2C commission |
0.1 |
0.3 |
0.4 |
B2C revenue |
8.1 |
30.6 |
55.9 |
Total revenue |
8.2 |
30.9 |
56.4 |
C2C commission |
0.1 |
0.3 |
0.4 |
B2C margin |
1.2 |
4.6 |
8.4 |
Total EBITDA contribution |
1.3 |
4.9 |
8.8 |
Total EBITDA contribution |
(16.3) |
9.9 |
37.2 |
E-commerce % of total EBITDA |
NM |
48.9% |
23.7% |
Source: Edison Investment Research
Why the strategy should work
The early signs are encouraging both in terms of MAU growth and monetisation. MIG has long claimed that it understands the Asian market, which operates quite differently from social media markets in western countries. We note that in China Facebook, Twitter and other western social network sites do not have a presence, whereas in MIG’s chosen markets of India, the Philippines and Indonesia social networks are dominated by the ‘big names’ such as Facebook.
MIG has already demonstrated its ability to establish new markets, build the number of MAUs and increase monetisation rates. In our view this bodes well for further increases in user numbers and monetisation rates, which are likely to be driven by:
■
The critical mass of users on the platform – now 32 million compared with 10 million a year ago.
■
The addition of social e-commerce both for C2C and for B2C.
■
Forecast growth in smart phone usage in MIG’s target markets, in particular in India.
■
The expected growth in the number of social network users in MIG’s target markets. MIG expects the number of social media uses to grow from 246 million in 2015 to 442 million by 2018. This expectation is based on forecasts made by Statista.com.
Our forecasts (last published in our research note Growth in users and monetisation continues, dated 23 October 2015) showed profitability being reached in FY17 with EBITDA of A$13.8m generated from 82 million users.
Our amended forecasts (see Exhibit 3) assume that FY17 will result in EBITDA of A$9.9m generated from 109 million MAU, including A$4.9m from e-commerce and A$7.1m from core social network business before share based payments. We have assumed share-based payments of A$2m The core business is now forecast to earn a lower EBITDA margin (9.7%). In our previous forecasts we had assumed that the artist incentive programme would have been complete by the end of FY16 (EBITDA margin of 20.9%). In our new forecasts, by FY18, our EBITDA margin increases to 21.6% for the core business and e-commerce. The business split in FY18 is expected to be 78% from core social media and 22% from social e-commerce.
We understand that operating costs will peak in H116 and then are likely to remain largely fixed. Payment gateway fees, revenue sharing with artists and gaming licence costs will remain variable and we expect that these costs will reduce over time (measured as a percentage of sales).
Exhibit 9: MIG – path to profitability (in $)
|
2015 |
2016e |
2017e |
2018e |
MAU (m) |
32 |
69 |
109 |
147 |
Revenue (A$m) |
12.3 |
46.0 |
103.9 |
171.7 |
EBITDA (A$m) (norm) |
(21.0) |
(16.3) |
9.9 |
37.2 |
NPAT (A$m) (norm) |
(20.7) |
(11.5) |
6.8 |
26.2 |
Growth rates |
|
|
|
|
Revenue |
|
274% |
126% |
65% |
EBITDA |
|
NM |
NM |
274% |
NPAT |
|
NM |
NM |
286% |
Source: MIG data, Edison Investment Research
Exhibit 10: MIG – path to profitability (description)
|
|
|
|
|
|
Establishment
■
Prove the ‘freemium’ model
■
Convert users into monetising users
■
Sign artists using incentive packages
■
Set up payment gateways
■
Launch in two additional territories
■
Complete product offering (games and e-commerce)
|
|
Proof and inflection point
■
Reach inflection point for growth in MAU
■
Increase monetisation via games
■
Add e-commerce (C2C and B2C)
■
Reduce incentives paid to artists
■
Reduce artist/games developer commissions
■
Turn EBITDA to positive
|
|
Create shareholder value
■
EPS ~A$0.09 cents per share (P/E of 6.4x*)
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Evidence of network effect appears
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June 2014 to December 2015 |
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January 2016 to December 2017 |
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January 2018 onwards |
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Source: Edison Investment Research. Note: *Based on share price of A$0.58.
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In our view this path to profitability is feasible because in the last 18 months MIG has:
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Grown its user base from 3.2 million (as per June 2014 Prospectus) to over 32 million by 31 December 2015, a tenfold increase. This gives us confidence in MIG’s ability to grow MAU to 147m by FY18.
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Signed over 650 artists to the platform, which means other artists are now likely to want to join the platform because they have seen the success that the migme platform can bring to artists. We expect that over time MIG will be able to reduce the revenue share with artists to ~50% (we assume 55% in our forecasts), which is MIG’s long-term goal.
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Signed distribution deals with major record labels in Indonesia and India.
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Developed a games business that will be launched in Q216 and is expected to be a major driver of growth in monetisation rates and MAUs.
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Launched an e-commerce strategy that is expected to make a positive contribution to EBITDA from H216.
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Put in place arrangements to make it possible for users in its chosen countries to pay using pre-paid cards and other card processing options.
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Shown strong growth in monetisation through selling virtual gilts and premium features. We expect that monetisation rates will rise significantly with the launch of the games platform in Q216.
Our analysis shows that it has taken icons such as Facebook and Twitter between 21 to 24 months to reach an inflection point where there is a sharp acceleration in growth rates. MIG should be able to reach this point late in FY16 particularly as a successful games platform should drive explosive growth rates.
MIG has looked at an example of a social commerce company in China. We acknowledge that the geographies are different but the social media characteristics of the market are similar and therefore relevant.
The example of social commerce in China is the privately owned Mogujie, which acquired Meilishuo in January 2016. Together these businesses are valued at US$2.5bn and in 2015 generated combined revenue of almost US$3bn. Mogujie featured in the 2015 Fortune Unicorn List of 100 privately held companies worth more than US$1bn.
Mogujie was founded as a social shopping services business in China in 2011 and since evolved into a social marketplace with revenues in 2015 of US$1.7bn and a MAU base of 47m. The key reasons for Mogujie’s success include:
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The ability for users to share views and opinions about goods.
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Suggesting products to be purchased online that match the users’ personal parameters.
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A focus on mobile first, which fosters higher visits, impulse buying and greater repeat purchases.
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Using the social network and in particular the artists and celebrities (key online influencers) to drive chat and the sharing of views, ultimately leading to a sale.