XL Media Plc. (XLM)

XL Media Plc. (AIM:XLM) is essentially a lead-generation company. The company generates revenues by driving targeted traffic to the websites of their business partners in exchange for performance-based compensation. XLM does this by operating a portfolio of over 2,000 websites (20 of whom generate over 50% of XLM’s revenues).

Stock Write-Up

  • XL Media’s Salad Oil Scandal (Published in August 2020). This report covers the background of XL Media, recent developments regarding the Google Demotion and value destruction through M&A. Also discussed in how the company may have learned from its mistakes, the new management and a healthy balance sheet.

Business Model

  • Lead generation 
  • SEO optimization 
  • Portfolio strategy
  • Categories: Gambling, Sports Betting, Personal Finance and Tech

Investment Thesis

  • Restructuring: The company is currently reorganizing its operations after being hit by a Google demotion. New management has taken over and the company will reposition its website asset portfolio.
  • High Gross Margins: Historically the XL Media core business has been operated with high gross margins and has produced high Free Cash Flow yields on invested capital.
  • Tuck-in acquisitions / fragmented markets: The performance marketing sector is highly fragmented.
Stuart Simms talks about the turnaround strategy during the 2020 Half-Year Results Presentation

Competitive Analysis

Background on XL Media

  • XL Media officially became a public company on March 21, 2014, as a provider of marketing services to online gambling operators. The company raised $69.5 million (£41.8 million) in the offering. At 49 pence per share, the market capitalization of XLM was about $154.5 million (£92.9 million). The proceeds of the fundraising would be used to fund acquisitions as well as investment in IT systems. 
  • In January 2016, XLM announced a strategic review. The press release stated that although the company had consistently reported strong financial performance, continually invested in organic growth opportunities, completed several successful earnings enhancing acquisitions and declared $21.25 million in dividends to shareholders, it was considering all options, including a sale of the company. The conclusion of the review, published four months later, was that the best way of maximising value for shareholders is by remaining listed in London as an independent company on AIM.
  • On February 2, 2017, WebPals enterprises announced its intentions to sell 12.5% of its 42.5% share in the company through an accelerated bookbuild. Ory Weihs, then CEO of XLM, had a little less than 10% ownership interest in WebPals. The placing was oversubscribed, resulting in WebPals disposing of 40 million shares at 100 pence, retaining 22.48% of the shares outstanding.
  • On March 28, 2017, WebPals and Israeli VC Partners announced that they have successfully sold their remaining stakes of 64,206,814 existing ordinary shares (32% of outstanding capital) in XLMedia at a price of 110p per share.
  • In January 2018, the Company announced the completion of a placement of 16,000,000 Ordinary Shares (the “Placing Shares”) at a price of 198 pence per Ordinary Share, raising gross proceeds of approximately £31.7 million (the “Placing”). 
  • On October 10, the company issues a press releases noting recent share price movements and stating that it “knows of no operational or corporate reason for the movement”. At the time the stock price has fallen to a low of 87 pence from trading at 200 pence at the beginning of the year. 
  • On December 18, 2018, the company announced a share buy back program that authorized the board to buy up to $10 million of the Company’s ordinary shares or a maximum of 22,035,240 Shares.
  • At the end of February 2019, the company announced a strategic update, saying it will focus on its high margin website publishing business and reduce its exposure to its media segment. The company notes that Media activities are not complementary to its Publishing activities and that in 2018 “Media accounted for approximately US$47 million (40%) of revenue and US$15 million (22%) gross profit.”
  • On June 4, 2019, the company announced a new stock buyback program. Pursuant to the 2018 programme the Company purchased 11,728,150 Shares at a weighted average price of 61.90 pence. The new program authorizes the company to purchase stock for $10 million or a maximum of 20,990,350 shares. As at the date of the announcement, the Company’s issued share capital consisted of 208,624,252 Ordinary Shares.
  • On July 16, 2019, the company announced that it would cease the buy back program and replace it with a tender offer for up to 19,675,000 Shares (9.51% of shares outstanding) for 80 pence per share. Through the two buy-back programs, the Company acquired 13,548,743 Shares at an aggregate cost of $10.8 million.
  • Two weeks later, the company announced that Ory Weihs, one of the founders of XL Media would step down as CEO of the company and be replaced by Stuart Simms. Simms is a veteran in the performance marketing sector, most notably having led a substantial transformation and restructuring of Rakuten Marketing as CEO. It is worth noting that since the sale by WebPals, Ory Weihs had been buying shares of XL Media as the stock price deteriorated. 
  • On August 15, 2019 the company announced the completion of the tender offer, which was more than 3 times oversubscribed. Following the purchase of the Shares, the number of ordinary shares in issue were 187,128,659 (excluding treasury shares), and the Company will hold 33,223,743 ordinary shares in treasury.
  • At the end of September, after having been relieved of the CEO role, Ory Weihs is still buying shares. At this point he owns 3.20% of the issued share capital.
  • On the January 20, 2020, the company issued a press release, stating that “on 18 January 2020, the Company became aware that a number of its casino sites have been manually demoted by Google, which impacts the visibility of the sites and their ability to generate meaningful levels of online traffic, and hence revenues, from new visitors.” 
  • On February 4, 2020, the Company provided an update on the situation. 107 sites were impacted by the demotion. Of the sites impacted, over 84 were tier 3 or tier 4 sites, being sites which are typically legacy or of low commercial value to the Company. The remaining 23 sites were tier 1 and tier 2 premium sites. The impact on revenue could exceed $2 million per month. In addition, once re-indexed, management expects that re-establish the former high rankings might take a long time.
  • On February 5, Stuart Simms purchased a total of 879,973 Ordinary Shares at a price of 26.45 pence per share, representing 0.47% of the current issued share capital. 
  • On July 2, 2020, the Company announced that it had completed the transition of its Corporation Tax residence from Cyprus to the UK. 

Summary of M&A Activity

Websites Owned and Operated by XL Media

XL Media owns and operates over 2000 domains. Nonetheless, the majority of the company’s revenues is generated by a handful of websites. XL Media does not disclose a full list of the domains and websites that they own, but here is a list of premium sites that we know that they operate.

Personal Finance Websites

Reviews & Tech Websites

Casino Websites

Sports Betting Websites