If you haven't heard of AirMedia yet, they're one of the hottest listings on the NASDAQ, having just gone public last week at a valuation of over $2.4B. While that in itself is not that unusual, AirMedia is a digital signage company, and at such a valuation, one of the largest in the world. The company operates 95% of the digital TV screens in 15 of China's largest airports, with a network of over 1,800 digital signs in the airports themselves and an additional 16,000 screens on airplanes operating in the region. Combining paid-for advertisements with entertainment content, AirMedia has been on a tear for two years now and hasn't shown any signs of slowing down. Let's see if we can do some wild speculation about the value of a screen based on the company's SEC filings -- which are by far the best I've seen for any digital signage company.
To begin with, AirMedia took in about $15.9M in revenue for the first half of 2007, with $4M in operating income and 25% operating margins. (See Google Finance for detailed financial info about the company.) On an annualized basis, this is nearly double the company's pace from 2006. Further highlighting the firm's growth is the expansion of their footprint over the past two years. As their website notes, "The number of airports and airlines in which we operated and the number of digital screens operating in our network increased from 16, six and 12,385 as of December 31, 2005 to 32, nine and 17,837 as of June 30, 2007, respectively." Impressed yet? Wait until you see how their revenue figures break down. Here are the stats that we have to work with:
For digital signage in airports:
Number of airports in operation: 32
Number of screens in our network airports: 1,822
Number of time slots available for sale: 35,967
Number of time slots sold: 12,797
Utilization rate: 35.6%
Revenue derived from airport screens: $10,560,000
For digital signage in airplanes:
Number of airlines in operation: 9
Number of screens in our network airplanes: 16,015
Number of time slots available for sale: 864
Number of time slots sold: 385
Utilization rate: 44.5%
Revenue derived from airplane screens: $4,403,000
AirMedia was kind enough to break down their revenues by source, so our analysis is a lot simpler and should be a bit more accurate than usual. Let's start with a basic observation. Buying time on airplane screens, where you have a mostly captive audience (barring those folks who are buried in their laptop or iPod, or brought a parachute for the quick escape) is vastly more expensive than doing so for screens in the airports. The average revenue per slot for screens on the airplanes was $11,436, versus only $825 per slot (on average) for the digital signs inside the airports. This suggests that AirMedia is charging more than 10 times as much for advertising time on the planes than in the airports. However, if we look at revenue per screen, the story is quite different. The company only made about $275 per in-airplane display, while taking in $5,795 for each sign in an airport. Of course, every screen on a plane is going to be showing the same content. So even though there are over 16,000 screens "under management", if we assume that the typical plane has about 150 seats (since I don't know if these are commuter flights, mid-distance, or long-haul), that would suggest that they have just over 100 planes in their network. Looking at their revenue from this perspective is more telling: they're deriving about $41k in revenue for every plane that they outfit, or roughly seven times as much as each screen in an airport. Of course, if the fleets are older and don't have in-seat screens, there might only be 8-10 screens per plane, giving them access to a greater number of planes (1,600-2,000). But since there are only a total of 864 spots listed for sale, I don't see how this could be possible.
Thus far, we've learned what they made on a per-screen (or per-venue) basis over a six-month period. But what about revenue per-slot, which is becoming a far more universal metric of network value? Going back to the numbers, AirMedia notes that there are 35,967 total time slots available for sale on their 1,822 airport signs, which works out to just under 20 slots per sign. Since Google Finance indicates that they've done $8.05M and $7.83M the last two quarters, and they have almost exactly that much again in accounts receivable, it appears that they may prefer to book their slots annually and bill quarterly, which is a nice deal if you can get it. Consequently, if we're conservative and say they only do a total of $30M in revenues this year (they're currently at $28M and on track to do about $32M), and the networks remain at their current utilization levels, then we can guess that they'll earn $21.1M (70.5% of the total) from the airport signs. This yields $21.1M / 1,822 screens / 7 spots sold per screen / 12 months, for an average price of about $137 per spot per screen per month. That's quite close to the advertising rate of $150/month per screen (or in some cases, per venue) that we've seen in past analyses of digital signage rates from SignStorey and other networks. On the airplane side of things, we'll assume that there are 100 planes under management and the remaining 29.5%, or $8.85M in revenues comes from that side of the operation. This gives us $8.85M / 100 airplanes / 3.85 spots sold per plane / 12 months, for an average price of $1915 per spot per plane per month. I can say with some comfort that the $137 number above falls in line with my expectations, but I have absolutely no idea how to price advertising in a plane. (In case you're wondering, we estimated the airport-versus-airplane percentages by taking the actual breakdown from the first half of 2007, as detailed earlier in this article.)
Overall, it looks like AirMedia has a pretty healthy digital signage business and is growing at a remarkable rate. But whether the company will be a long-term stock market success is still quite uncertain. I'm not a financial professional, so I'm not qualified to give financial advice, but my personal feeling is that the Motley Fool got it exactly right: "Unfortunately, investors have inflated AirMedia's valuation to roughly $2.4 billion. Even if the company doubles business for 2007, that's still a frothy 64 times revenue. In other words, this is really a stock for those who can take a flier on an early-stage company in a strong growth market -- which usually requires investors with a tough stomach for turbulence." Ah, a sentence that combines the words "tough stomach," "growth" and "turbulence." Yep, they're definitely talking about digital signage. But while the massive numbers above can seem almost like make-believe for owners of smaller local networks, the idea that AirMedia is likely fetching the same amount per screen as so many other networks we've looked at should be comforting. Given that the company attributes their strong performance to outstanding execution, rather than some proprietary or off-the-wall business model, AirMedia is proof that digital signage networks can be scalable and profitable when you get the basics right.