Has EVR Holdings bottomed out following post-results crash?
Former AIM darling EVR Holdings is currently sitting at a record low, having been hit severely by the release of a mixed set of 2018 results earlier this month. Despite its decline, the virtual reality (VR) company’s flagship music platform MelodyVR is gradually moving towards commerciality and continues to attract interest from a number of its sector’s biggest players. Here, we look a whether the stock has bottomed and could represent a buying opportunity at its current 2.58p share price.
Since listing in 2016, EVR Holdings has been one the most covered VR stock on London’s junior market thanks to its ability to court the interest of high-profile industry players like Sony/ATV, NEC Group, and Facebook.
To recap, the business owns an application called MelodyVR, which launched in May last year. The mobile software simulates the experience of being at a live concert and allows fans to buy digital tickets to sold-out real-world events. It also offers a large library of previously recorded live music performances for streaming from a variety of well-known artists.
After peaking at 18p last April, shares in EVR entered a period of serious decline that lasted until the end of the year. The catalyst for this massive change in sentiment – the company had risen from 8p to 18p in just four months before its fall – was a £20m fundraise carried out at 16p a share to support Melody VR’s growth.
EVR’s rapid decline began to settle in January 2019, with shares settling at a relatively steady 3-4p throughout the first four months of this year. However, EVR took a fresh battering earlier this month following the release of its results for the year ended 31 December 2018.
The update wiped 26.2pc off the company’s shares in a day before ultimately pushing them to a record low of 2.67p on 13 May. The organisation has continued to sink since and currently sits at 2.58p with a market cap of £35.3m.
The market’s disappointing response to EVR’s results could have arisen from a sense of frustration at the fact that it is yet to make a profit from its unique product. As mentioned, MelodyVR launched in the UK and US last May before being rolled out across a further eight European territories. Last year also saw EVR reveal a partnership agreement with Ibiza Rocks Group and expand it’s content and distribution opportunities by signing licence agreements with numerous labels, publishers and venues.
Critically, the firm also broadcast its first real-time global VR stream of a live performance event, featuring One Direction’s Liam Payne. In his chairman’s statement, EVR’s Anthony Matchett said the gig was a success, achieving more than 127,000 views after being broadcast live to 36 countries on MelodyVR and Facebook 360.
However, despite these encouraging steps forward, EVR generated revenues of just £1.2m in 2018. Meanwhile, it incurred an operating loss of £11.3m, compared to a loss of £6.2m in 2017, which it put down to increased investment in people and operating capabilities.
Despite these claims of large investment, the business also revealed a cash balance of £19m at the end of the period – suggesting it has, in fact, spent little of the money raised. Matchett said this approach will ensure the firm has sufficient resources to continue to scale responsibly regardless of the state of the capital markets and the uncertainty that currently surrounds the UK. However, this is likely to be of little consolation to those pre-placing investors that are now sitting on heavy losses.
Despite its decline, there is an argument to be made that the fundamental reasons that drove so many people towards EVR Holdings when it first listed remain in place. As we have written before, although the size of the global VR market remains modest – it was worth around $14bn in 2017 – International Data Corporation expects it to grow to whopping $143bn by 2020. Likewise, market research company Statista estimates that revenues from the sale of augmented reality, virtual reality and mixed reality devices will rise from $7.2bn in 2017 to $84.7bn in 2020.
There could also be a lot of value on offer in virtual gigs. Prior to EVR’s Liam Payne concert, Samsung and Live Nation teamed up to stream a Coldplay concert to millions of fans across more than 50 countries. In the fast-moving world of VR, who knows where this potentially huge market could end up. If really would be a massive shame if it turns out that the sector peaked with Coldplay.
Of course, whether or not you want to get exposure to VR comes down to the amount of faith you have in its future. However, if you do believe that the area is set to thrive, then there are certainly worse ways of getting exposure than EVR Holdings.
The business offers a unique product that has been received positively and captured the support of almost every major player in the technology, music, and concert sectors. The firm is also fully-cashed up and led by a wealth of industry experience – its shares leapt 27pc last December when it hired former Universal Music CFO Andy Brown as its chief financial officer.
A common criticism of EVR on the way up was that it was over-valued. Many argued that the firm’s huge valuation had arisen from retail punters choosing to ignore its lack of profitability in favour of betting blindly on the VR sector’s popularity and MelodyVR’s accessibility.
Based on this month’s results, EVR is yet to prove these doubters wrong. However, with shares now sitting at record lows, investors will now pay a lot less to take this gamble. I will certainly be interested to see where EVR is sitting one year from now.
You can see more about Melody VR and the views of Rudimental below.