Vinyl Group (ASX:VNL): The ASX’s only music technology stock is a compelling opportunity

Vinyl Group (ASX: VNL) is the only ASX-listed company offering exposure to the music technology and media industries. It has undergone a major transformation in 18 months, now a business with a curated portfolio of interconnected brands that empower everyone in the music ecosystem.

 

Vinyl Group’s brands

Vinyl has four brands including:

– Jaxsta: The world’s largest and only official music database with over 380m verified credits,
– Vinyl.com: An online record store with over 50,000 vinyl record titles,
– Vampr: A “LinkedIn for creatives”, in other words a social-professional networking platform that aids 1.3m musicians, creatives and artists; and,
– The Brag Media: A publishing company behind several music brands including Rolling Stone, TheBrag.com, The Music Network and Tone Deaf. Together, its network of brands reaches 11.5m users per month and over 35m monthly page views.

All these businesses are valuable in their own right, but having these brands together offers the company significant scale and appeal. When the company first listed, it only had Jaxsta, but it has bought Vampr and The Brag Media during the last 12 months, and established Vinyl.com.

 

Some high-profile shareholders

Vinyl’s shareholder register includes Songtradr (an American song licensing company) and WiseTech (ASX:WTC) CEO Richard White. Songtradr first invested in the company in 2020 and has bought more shares since then (most recently in April 2024), now owning 19.95%. As for Richard White, he invested in the company twice in 2023, with the latter capital raising enabling The Brag Media’s acquisition. Vinyl shares have increased substantially in recent months, buoyed by the most recent investments from these major shareholders, and the acquisitions beginning to be reflected in the company’s results.

 

 

The opportunity for Vinyl is very lucrative

With the rise of self-releasing artists, estimated at 6.4m (including full-time professionals as well as part-time amateur musicians), and an increase in average creator spending, which is estimated to exceed $600 annually on music creation, promotion, distribution, and commercial tools, the potential market size for Vinyl Group’s platforms is substantial. The barrier to entry for music creation and release has significantly lowered, enabling more individuals to pursue music as a passion rather than a career. The revenue potential of self-releasing artists lies more in their spending on tools and services rather than their earnings from music streams, herein providing the opportunity.

Additionally, there has been a notable resurgence in the popularity of vinyl records among both music lovers and contemporary artists, once again establishing them as a cherished medium for music production. Although the glory days of Vinyl records (i.e. the 1970s when over 300m records were sold globally) are gone, talk of their demise have been greatly exaggerated. Indeed, they are resurging in popularity, growing for 17 straight years in the US and UK, with new releases among the most popular sellers. Even for those who don’t have technology to play the records, they can serve as a kind of collectors’ items for fans of particular artists.

 

The company’s growth is expected to accelerate in the months ahead

The latest half-yearly and Q3 financial results from Vinyl Group indicate growth momentum is set to continue from FY24 onwards. Obviously because the company is now a combined portfolio of brands, rather than just being Jaxsta, but all of the individual brands have been performing well, and this will be reflected in future results.

The group’s H1 FY24 revenue came in at A$876k, representing an impressive growth of 317.9% compared to the same period last year. The just published Q3 results also displayed a staggering 218% QoQ growth clocking A$1.9m in revenue (from an annual run rate of A$1.2m in FY23).

These upswings were primarily driven by an increase in retail performance of the Vinyl.com store during the Christmas sales period, the integration of Vampr and Brag Media services, and growth from the B2B services.

 

A high-potential aggregation of music brands

In FY23 Jaxsta had reported relatively lower revenue with high customer concentration. There were five customers that accounted for 70.3% of the total revenue (2022: 75.6%). The acquisition of Vampr has paved the way to significantly boost the group’s customer base and will aid in resolving the customer retention concern. In Q3, Jaxsta’s B2B signups have accelerated +90% YoY, whereas the average order value on Vinyl.com has jumped +37% QoQ.

After Vampr was acquired in CY23, the company acquired The Brag Media in January 2024. The Brag Media has recorded an average revenue growth of 125% over the past two financial  years and has delivered A$8.5m in revenue and A$350k in profit in FY23. Consequently, the reach and sales opportunities for Vinyl is expected to accelerate in both magnitude and scope with The Brag Media’s impressive audience reach of about 11.5m users per month in Australia.

As the integration gets completed, Vinyl Group’s operations will witness new product launches, synergies across our tech platforms and cross-promotion of display advertisements across media properties.

 

Pitt Street Research believes there is more growth to come

Our friends at Pitt Street Research released a report on Vinyl Group on 7 May 2024. The report valued the company at A$0.23 per share under a base case scenario and A$0.30 per share in an optimistic (or bull) case scenario. This was calculated based on a DCF methodology, calculating revenues from all 4 businesses and estimations of profitability achievement and growth.

More details can be found in the report, although in the base case the total group revenue is expected to be A$6.1m for FY2024 and A$78.6m by FY2030. In the bull case revenue is expected to be $7.3m, reaching $96.4m by FY2030. Vinyl Group’s revenues are expected to grow due to growth in number of artists and increased spending on music creation, promotion, and distribution.

After an inevitable increase in expenses in FY24 as the businesses are integrated, the report forecasted EBITDA break-even in FY25 and a gradually growing margin over the years afterwards, to 35% by FY30. Net profitability was modelled to be achieved in FY26. Risks outlined in the report included (but were not limited to) competition, cost inflation and key personnel risk.

 

Catalysts ahead

Notwithstanding the recent share price rally, Vinyl Group shares still have a lot of upside left. The company has a bright future ahead as the number of artists and creators, their spending on content creation, not to mention music fan expenditure on merchandise (namely vinyl records and music publications) are all expected to increase in the months and years ahead.

 

Disclosure: Pitt Street Research directors own shares in Vinyl Group.

 

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