Advertisement must be pretty good business.
NFL Revenue and Viewership
In 2010, the NFL super bowl fetched around 95 million viewers and $213 million in network TV ad revenue last year, according to this article in Forbes.
In the 2011 Super Bowl just finished minutes ago, the revenue from ads during the game is expected to top $210m, with audience likely to smash last year's record of 106.5 million, according to this article in Guardian.co.uk.
China Media Express Holdings’s Under Attack
China Media Express Holdings operates inter-city and airport express buses in China, and they make money by showing bus riders entertainment and advertisement. The number of buses on its network and the company’s revenue number have been the central thesis of a recent negative blog report released by Muddy Waters Research.
The MW report together with an earlier report by Citron Research have caused a quite a bit of fear in the market for the stock last week, and together they have successful brought down the price of the company by about one third in the last week, from $21 to about $14. The stock reached as low as a little over $10, or more than 50% off from its price before the CR article.
How Does CCME and Super Bowl Compare?
CCME reported a revenue of $95 million for 2009, and for the first nine months of 2010, it reported a total revenue of $154 million (see 3Q10 10-Q). For the full year of 2010, analysts are predicting a total revenue of $215 million, exactly the same amount Fox Sport raked in for one night’s work tonight.
CCME claims it has a passenger flow of over 1 billion, according to a presentation (Page 2) it made to a group of investors back in September, 2010. If Fox Sports can make $210 million ad revenue with 106.5 million viewers, I guess it is reasonable for CCME to make $215 million of over one billion people who typically sit in their busses for one hour or two, about the same time duration of a Super Bowl game. The CCME model is about 90% cheaper than the super bowl rate, but then, as MW pointed out, Chinese people are so much poorer…
A margin of safety of 90% is more than enough to make me sleep well at nights…
Does the Number of Buses Matter?
Can the buses covered by CCME network carry one billion people a year? Back in June 2010, the company claimed it had 22,336 buses in its network, according to the same presentation. It takes each bus to carry 123 people per day to carry one billion people in a 365-day year. It sounds reasonable to me. You know the only thing China has in plenty is people – buses are usually very crowded.
MW report went great pain to argue that CCME has only 12,565 busses on its network, using Advertiser Kit data passed on to it by a sales person from CCME. It also argued the company more like made $17 million of revenue in 2009, instead of $95 million reported.
There are a number of holes in MW’s argument in the number of buses. First, the support documents are not original, discounting its validity completely; secondly, the support documents does not appear to be complete, for it omitted all the airport buses and a few key provinces that the company has operations in. Interestingly, MW retracted the support document from its website a few days after it published its report. If you click on the link in footnote 8 on page 5 of its report, you will get a page that tells you the documents do not exist any more.
Perhaps MW has doubt about the truthfulness of the documents itself.
Let’s not fall in the trap of arguing about the number of buses. To go to extreme, as long as there are people willing to pay for the advertisement, I don’t care if CCME has only one bus. The fewer the bus, the less capital expenditure, maintenance, and a thousand of other troubles.
Even the company had only 12,565 buses, so the number of people dropped by a factor of 2. Now instead of being able to carry one billion people during a year, it could only carry 500 million.
500 million people and $95 million revenue (for 2009) – it still sounds reasonable. Doesn’t it?
MW’s Creative Way of Estimating Revenue
2009 annual report was audited by Deloitte Touche Tohmatsu from Hong Kong (DTT). If you ask me not to trust the auditor, who had access to all the books of the company and to trust the MW folks, who at best simply beat the bushes around the company, I need a good reason.
MW’s method of estimating the revenue number is pretty unorthodox and should we say, laughable. Since many of my readers may not have read the report, I would refer you to page 18 of the MW report. In nutshell, it uses the Revenue per sales & marketing for a competitors discounted by 25% as the productivity of CCME, and then arbitrarily assign a sales & marketing headcount for CCME – the product of the two gives magically the total number of CCME in 2009.
I let you be the judge there. I found it too creative for my taste.
My Estimate of CCME Revenue
Yesterday, I estimated the potential revenue of CCME’s Beijing Airport Express business and concluded that it is not an obvious fraud to me. The company implied that the airport is contributing about $2.5 to $3 million revenue, and based on the rate card, I saw no evil.
Today, I expand my calculation to include all the provinces and airports on the rate card. The method is the same as I used yesterday. I want to point out that since I do not have the rate table for the Special Topic advertisement, which the company said it sells a whole 5 minutes worth each month, I tossed the category completely.
Here are the results (Revenue in thousands of US dollars):
Estimate CCME Monthly Revenue
As I talked about yesterday, since I do not know the business mix, I calculated the maximum, minimum, and an equal-weighted average for each category of advertisement in each city.
My calculation indicates that for each month, the company can generate of a minimum of $31 million, a maximum of $49million, and an average of $38 million in revenue.
I See No Evil In the Company’s Revenue Number
Currently, the market is forecasting a monthly revenue of about $20 million. The company has plenty of room to discount from its rate card.
And the rate card does not have rate for the Special Topic add, also missing in the rate card are the rates for at least two airports (ChangSha and ChengDu) and a few provinces (such as JiangXi and HeNan), which came online after June 2010, when the rate card was made.
Company does not want to make the most recent rate card available to avoid aiding the competitors. I am sure you will understand, unless, of course, you are with Muddy Waters Research.
The value investors in me urge me go where the fear is, for that is where the excessive gain is to be had. That said, I do not want to not go blindly, or else instead of being praised by the ghost of Benjamin Graham, I got an “F” from the professor. Based on the analysis above, I see no evil in the company’s total revenue number.
You may also want to read my article of yesterday which focuses on CCME's Beijing Airport Express business. It does have a bit more background information.
Disclosure: Long CCME
NFL Revenue and Viewership
In 2010, the NFL super bowl fetched around 95 million viewers and $213 million in network TV ad revenue last year, according to this article in Forbes.
In the 2011 Super Bowl just finished minutes ago, the revenue from ads during the game is expected to top $210m, with audience likely to smash last year's record of 106.5 million, according to this article in Guardian.co.uk.
China Media Express Holdings’s Under Attack
China Media Express Holdings operates inter-city and airport express buses in China, and they make money by showing bus riders entertainment and advertisement. The number of buses on its network and the company’s revenue number have been the central thesis of a recent negative blog report released by Muddy Waters Research.
The MW report together with an earlier report by Citron Research have caused a quite a bit of fear in the market for the stock last week, and together they have successful brought down the price of the company by about one third in the last week, from $21 to about $14. The stock reached as low as a little over $10, or more than 50% off from its price before the CR article.
How Does CCME and Super Bowl Compare?
CCME reported a revenue of $95 million for 2009, and for the first nine months of 2010, it reported a total revenue of $154 million (see 3Q10 10-Q). For the full year of 2010, analysts are predicting a total revenue of $215 million, exactly the same amount Fox Sport raked in for one night’s work tonight.
CCME claims it has a passenger flow of over 1 billion, according to a presentation (Page 2) it made to a group of investors back in September, 2010. If Fox Sports can make $210 million ad revenue with 106.5 million viewers, I guess it is reasonable for CCME to make $215 million of over one billion people who typically sit in their busses for one hour or two, about the same time duration of a Super Bowl game. The CCME model is about 90% cheaper than the super bowl rate, but then, as MW pointed out, Chinese people are so much poorer…
A margin of safety of 90% is more than enough to make me sleep well at nights…
Does the Number of Buses Matter?
Can the buses covered by CCME network carry one billion people a year? Back in June 2010, the company claimed it had 22,336 buses in its network, according to the same presentation. It takes each bus to carry 123 people per day to carry one billion people in a 365-day year. It sounds reasonable to me. You know the only thing China has in plenty is people – buses are usually very crowded.
MW report went great pain to argue that CCME has only 12,565 busses on its network, using Advertiser Kit data passed on to it by a sales person from CCME. It also argued the company more like made $17 million of revenue in 2009, instead of $95 million reported.
There are a number of holes in MW’s argument in the number of buses. First, the support documents are not original, discounting its validity completely; secondly, the support documents does not appear to be complete, for it omitted all the airport buses and a few key provinces that the company has operations in. Interestingly, MW retracted the support document from its website a few days after it published its report. If you click on the link in footnote 8 on page 5 of its report, you will get a page that tells you the documents do not exist any more.
Perhaps MW has doubt about the truthfulness of the documents itself.
Let’s not fall in the trap of arguing about the number of buses. To go to extreme, as long as there are people willing to pay for the advertisement, I don’t care if CCME has only one bus. The fewer the bus, the less capital expenditure, maintenance, and a thousand of other troubles.
Even the company had only 12,565 buses, so the number of people dropped by a factor of 2. Now instead of being able to carry one billion people during a year, it could only carry 500 million.
500 million people and $95 million revenue (for 2009) – it still sounds reasonable. Doesn’t it?
MW’s Creative Way of Estimating Revenue
2009 annual report was audited by Deloitte Touche Tohmatsu from Hong Kong (DTT). If you ask me not to trust the auditor, who had access to all the books of the company and to trust the MW folks, who at best simply beat the bushes around the company, I need a good reason.
MW’s method of estimating the revenue number is pretty unorthodox and should we say, laughable. Since many of my readers may not have read the report, I would refer you to page 18 of the MW report. In nutshell, it uses the Revenue per sales & marketing for a competitors discounted by 25% as the productivity of CCME, and then arbitrarily assign a sales & marketing headcount for CCME – the product of the two gives magically the total number of CCME in 2009.
I let you be the judge there. I found it too creative for my taste.
My Estimate of CCME Revenue
Yesterday, I estimated the potential revenue of CCME’s Beijing Airport Express business and concluded that it is not an obvious fraud to me. The company implied that the airport is contributing about $2.5 to $3 million revenue, and based on the rate card, I saw no evil.
Today, I expand my calculation to include all the provinces and airports on the rate card. The method is the same as I used yesterday. I want to point out that since I do not have the rate table for the Special Topic advertisement, which the company said it sells a whole 5 minutes worth each month, I tossed the category completely.
Here are the results (Revenue in thousands of US dollars):
Estimate CCME Monthly Revenue
As I talked about yesterday, since I do not know the business mix, I calculated the maximum, minimum, and an equal-weighted average for each category of advertisement in each city.
My calculation indicates that for each month, the company can generate of a minimum of $31 million, a maximum of $49million, and an average of $38 million in revenue.
I See No Evil In the Company’s Revenue Number
Currently, the market is forecasting a monthly revenue of about $20 million. The company has plenty of room to discount from its rate card.
And the rate card does not have rate for the Special Topic add, also missing in the rate card are the rates for at least two airports (ChangSha and ChengDu) and a few provinces (such as JiangXi and HeNan), which came online after June 2010, when the rate card was made.
Company does not want to make the most recent rate card available to avoid aiding the competitors. I am sure you will understand, unless, of course, you are with Muddy Waters Research.
The value investors in me urge me go where the fear is, for that is where the excessive gain is to be had. That said, I do not want to not go blindly, or else instead of being praised by the ghost of Benjamin Graham, I got an “F” from the professor. Based on the analysis above, I see no evil in the company’s total revenue number.
You may also want to read my article of yesterday which focuses on CCME's Beijing Airport Express business. It does have a bit more background information.
Disclosure: Long CCME
