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Good Life Networks Analysis

Good Life Networks (GOOD.V) is a programmatic digital advertising technology company. GOODvides the infrastructure for advertisers to connect with publishers. This allows brands to get their advertisement in front of the consumers they feel suit their brand.

Good Life Networks makes money be retaining a percentage of advertiser’s fees. The third slide from GOOD’s recent investor deck provides the best visual of what the company does.

Good Life Networks Technology Graphic
Good Life Networks Investor Presentation

GOOD reported annual financials on April 4th, 2019, and in the next two days the stock dropped 32%. Let’s take a look at what I think the Pros and Cons are of Good Life Networks as an investment. I currently own shares of Good Life Networks. To see all my holdings please view the My Portfolio page.

Good Life Networks: Pros

  1. Growth: GOOD is aggressively growing revenue. GOOD is growing by both organic revenue and by acquisition. GOOD increased revenues organically by 106% in 2018. Add in the revenue from their two acquisitions Impression X and 495 Communication and they are reporting a pro forma revenue of $48 million. GOOD is also projecting $60 + million in revenue for 2019. This is before their most recent acquisition of mPlore.
  2. Increase in Digitial Ad Spending: The macro trends are clearly in favour of Good Life Networks. eMarketer predicts that digital ad spending will overtake traditional ad spending in 2019. eMarketer estimates an increase in digital ad spending by 19.1% to $129 billion and $172 billion by 2021. This bodes well for GOOD as their overall industry is growing and should continue to grow for the foreseeable future.
  3. Technology Advantage: GOOD reports that their technology platform makes 117,000 decisions per second. The platform is able to deliver ads in 200 milliseconds. This is 3x faster than the Interactive Advertising Bureau standards. I’m not sure at what speed competitors run but beating the IAB standard can’t be a bad thing.
  4. Zero Churn Rate: In addition to platform speed, GOOD has had zero churn with its platform integrations. Prior to acquisitions, they had forty-seven server to server integrations all of which remained in 2018. I believe a zero percent churn rate is an indication of customer satisfaction and the quality of their service.
  5. Personally Identifiable Information (PII): GOOD makes a point to emphasize that they do not use personally identifiable information (PII). CEO Jesse Dylan said they foresaw that using PII would become an issue so GOOD focused on building a platform that does not use PII. The best example of misuse of PII is the Facebook/Cambridge Analytica scandal that was exposed in 2018. As governments around the world set new online privacy rules this could become a major advantage for GOOD.
  6. Platform Mix: GOOD has access to a wide range of platforms. This allows them to better serve both the publisher and advertiser. GOOD is able to advertise on mobile, desktop, in-app, mobile games, and connected television. This provides a one-stop-shop for advertisers to reach consumers through all platforms.
  7. Acquisition Terms: GOOD has made three acquisitions in late 2018 and early 2019: Impression X, 495 Communications and most recently mPlore. GOOD has developed a certain formula for structuring their acquisitions. I am by no means an accountant but the deal structures seem to be advantageous to GOOD. GOOD provides only a small portion of the purchase price upfront while the rest is earned by hitting performance benchmarks. If the benchmarks are not reached a portion of the purchase price is withheld. Both entities win if the acquired company performs up to expectations.

Good Life Networks: Cons

  1. Balance Sheet: All the acquisitions mentioned above aren’t free and as a result, GOOD has accumulated $9.8 million in debt with $4.3 million due in the next twelve months. GOOD also owes $12 million in earn-outs for their Impression X and 495 Communications purchases. In 2018 GOOD was unprofitable which may lead to a lack of cash in 2019 and 2020 as they pay for the acquisitions. A lack of cash may lead to an equity raise, which would dilute shareholders, or the need to take on additional debt.
  2. Accounts Receivable: GOOD earned $20 million in revenue for 2018 however they had accounts receivable number of $20.5 million. In a follow-up video to their financials, CEO Jesse Dylan explained that they “inherited” $10 million dollars in accounts receivable from their acquisitions. Dylan went on to further explain that GOOD had collected $10 million from their own revenue and since earnings, they had collected several million more. As a result, GOOD had accounts receivable of 41% of revenue as of the video. Apparently, this is around the industry norm. A quick look at AcuityAds financials and their A/R ratio was 47% as of December 2018. This will be something that investors will need to keep an eye on.
  3. Options Issuance Under Market Price: On December 27th, 2018, GOOD granted 1.7 million stock options with an exercise price of $0.15. The options were granted to directors, officers, employees and consultants of the company. GOOD’s shares were trading at $.20 cents on December 27th meaning they were issued at a 25% discount to market value. I sent an email to investor relations for some colour on how they arrived at this exercise price however I received no response which is another issue in itself. Issuing stock options with an exercise price under market value gives me the sense that insiders are profiting off the backs of regular shareholders.
  4. Importance of VP of Technology Chris Bradley: In Jesse Dylan’s presentation at the Cantech Investment Conference he mentions that VP of Technology, Chris Bradley, built their ad tech platform. Dylan said that Bradley needs to work for the company for the rest of his life. This gives me the impression that Bradley is vital to the use and continued development of their ad tech platform. If he were to leave the company this would be a red flag.
  5. Constant Focus on Share Price: This is more of a personal annoyance. In nearly every video or presentation Jesse Dylan compares GOOD’s share price to The Trade Desk or other digital advertising companies. I appreciate that he believes that GOOD’s shares are undervalued but it feels like he is pumping up the share price. I’d prefer more focus on improving the company than focusing on the share price. If they execute and show earnings growth the share price will follow.
  6. Lack of Insider Buying: According to Canadian Insider GOOD has had zero insider buying within the last six months. This seems like a direct contradiction to point number five, that their stock is undervalued by any metric. If their stock is so undervalued why aren’t insiders scooping up shares? Even with the recent pullback from $0.50 a share no insider buys have been reported. I’ve sent a request to Investor Relations for an explanation. Let’s see if I hear back this time.


Things I’m Just Not Sure About

  1. Acquisitions: Growth by acquisition can be a risky endeavour. Jesse Dylan continues to say that their acquisitions are immediately accretive to earnings. Time will tell if this is true but Dylan did explain that 495 Communications and Impression X could now use the GOOD high-speed ad technology instead of using someone else’s. GOOD’s management has taken on $10 million in debt to fund these acquisitions with lots of earn-out still to be paid. If they don’t get the acquisitions right then the company is going to struggle to repay that debt and fund further growth.
  2. Accounts Receivable Blockchain Application: In November GOOD announced they were developing a blockchain/cryptocurrency solution for account receivables in digital advertising. Jesse Dylan sat down for an interview with the COO of Einstien Exchange. He explained that account receivables issues have caused some digital advertising companies to go bankrupt waiting for receivables. It will be interesting to see if GOOD gains any type of advantage by developing this technology however at the moment it’s a wildcard.

Conclusion

Good Life Networks is an exciting business in the digital advertising industry. Digital advertising spending is growing rapidly as more and more people “cut the cord” from cable and turn to video streaming services. GOOD has made two recent acquisitions to try and ensure they are a major player in this space. In order to make these acquisitions, they took on substantial debt. This has added risk to the investment thesis of Good Life Networks.

In 2019 GOOD will need to execute by growing revenue, successfully integrating their acquisitions, and turn the increased revenue into earnings. GOOD needs to show they can pay for their acquisitions without taking on more debt or raising equity. I will continue to hold my position and watch how the Good Life Networks story unfolds.


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