Zoo Digital Share Discussion Threads

[74tom] 01/6/2023 08:55

Ah, I see some more info was disclosed on that new quarterly update video which explains the further fall in the last couple of days.

Note than in the April video the softening of sales was blamed on a 'major customer' reorg.

In the latest video shared by W13Ken the CEO confirms that it's their 'largest customer' that has paused some campaigns, which will resume shortly. That's a fairly vital distinction.

In FY22 that largest customer was responsible for $54.9m out of $70.4m recognised, almost double the $28.5m out of $39.5m recognised in FY21.

What's utterly outrageous in my view is that none of this was disclosed in the trading update. Not a word on their 78% customer pausing campaigns from Feb which still haven't resumed now.

How is this allowed to roll? It baffles me.

[w13ken] 31/5/2023 17:37

A new quarterly Investor Newsletter has just been released:


It addresses AI concerns and aims to reassure that Zoo is on the right track.

Here's the related video with a lot covered in 6 minutes inc. Japan, Korea, Spain & AI:


Although I'm disappointed by the recent shareprice fall, I remain optimistic for the future.

[74tom] 31/5/2023 12:43

I’ve been watching this closely over the last month as it was technically oversold post placing. Three attempted rebounds towards 140p resistance were shutdown very quickly by heavy selling, to me this signifies major holders wanting to sell down but not trash the share price, so they wait for a rise and sell into it instead.

Going back to this video that accompanied the trading update;



I thought the key part was from 1min 50 onwards re. ‘Temporary softening of sales from a major customer’

Note the reorg hadn’t completed at 28/04 but they ‘believed’ it would be done ‘shortly’ at which point order flow will resume as normal.

Given the apparent materiality of these sales (2 months disruption caused a ~$7m revenue miss), you’d think an RNS would accompany their resumption, but nothing has landed yet and they are now 2 months into FY24.

Final results were on 7th July last year so more clarity should land in a few weeks time…

[binghall] 31/5/2023 11:51

Well whatever the merits of the capital raise and the acquisition, it's not comfortable to see the last 12 months gains wiped out in 1. I would like to think that the company may have issued a clarifying statement given the share price has dropped by more than a third in a month and the shares bought in the placing are well under water. Emails to the company also remain unanswered which does sit well as an investor.

[mortal1ty] 12/5/2023 08:43

I agree. Director share sales usually occur in these sort of situations.

[amt] 11/5/2023 21:49

Very good posts Mortality, you might be correct but don't forget they just signed a new Hollywood studio so their tech must be good. Time will tell.
Plus the Directors would have been selling shares if they thought the big jump in turnover was a fluke.

[mortal1ty] 11/5/2023 16:35

Management learn't a lot from the profit-warning in 2018. They don't have to issue profit-warnings as long a they will meet 'official guidance / consensus'.

FY sales is forecast at c. $90m. They will achieve this. Therefore there was no need for an official warning. However, given they did $51.4m in H1, the market / institutions were expecting a big upgrade (which they didn't get, hence the share price drop).

Now... this is where it gets tricky. Next year they have to do $106m in sales. Given they did $38.6m in H2, and are facing rough comps in H1, this looks a challenge to meet. Acquisitions will help :) - which is what we are seeing.

[74tom] 11/5/2023 14:37

"As ever for a rational investor this is a chance to buy better than the institutions
Conspiracy nuts grow up"

Ahh, so were the investors who bought over £1.75 in Feb, March & April irrational then?

Or should they have assumed that the signing of a major Hollywood studio would result in a huge miss when the next trading update landed 2 months later?

£1.40 now gone, next stop £1 IMO.

[mortal1ty] 11/5/2023 11:05

amt. Once upon a time, I put my entire portfolio in Zoo Digital (when I was young and reckless). 35p to 130p I owned it. I think I owned 1% of the company at one point. I met the CEO as part of my job. I sold up and invested in US stocks for the past 4 years since (mixed success). I came back to UK stocks more recently.

So I personally have a history with this stock. When I came back to look at it, it was interesting to compare the promise from 2018 to what they achieved over the 5 years.

Back then it was all about cloud dubbing and winning new studios. I would say on the studio front they have lost business with Netflix, and basically become highly geared into Disney. For example, Zoo used to be on this page hxxps://np3.netflixstudios.com/s/dubbing . Netflix business seems to have gone to next to nothing. Meanwhile cloud dubbing seems to have gone a bit quiet? The business is using is high share price to raise capital to buy physical recording studios.

I think Zoo is basically doing huge amounts for Disney related to their launch of Disney+. Converting their back catalogue. This is obviously unsustainable.

$70m sales from one customer. I mean to put this into context, if Zoo charged $100k to dub a movie into a single language (I actually think it is a fraction of this), and they do 12 languages a movie, that is c. 60 movies a year. Disney doesn't need that sort of demand on an on-going basis.

[pockstones] 10/5/2023 20:34

The placing has given the company the means to continue to grow its business. Management have demonstrated integrity over many years. However the placing has seen some stock land in short term hands resulting in a share price fall
As ever for a rational investor this is a chance to buy better than the institutions
Conspiracy nuts grow up

[74tom] 10/5/2023 12:31

It's a given with penny stocks, shouldn't be happening at this level.

[simonsmithiv] 10/5/2023 11:08

"I've long suspected that a dark arts tactic on AIM shares that want to raise funding is for positive news to be released in the months before a placing to push up the share price & allow connected parties to take profit. They then use some of the proceeds of these share sales to partake in the placing."

lol, I think that's a given

[74tom] 10/5/2023 11:04

Why am I posting here? I was very tempted to buy in post the new studio announcement in Feb, however held off until the materiality of the contract was clarified. Given this announcement was made at the same time as the customer reorg was taking place, the significant 'resistance' encountered around £2 now looks extremely spivvy.

I've long suspected that a dark arts tactic on AIM shares that want to raise funding is for positive news to be released in the months before a placing to push up the share price & allow connected parties to take profit. They then use some of the proceeds of these share sales to partake in the placing.

Let's say ZOO had announced the customer reorg in early Feb & a decrease in their 2023 forecasts, how would this have impacted shares? They would have been hammered! By not announcing it they've let hundreds of PI's buy shares in the £1.80- 2.20 range, all of which are miles underwater now.

So yeah, if you want to believe their $400m long term forecast then good luck to you given they couldn't forecast FY23 correctly halfway through the year...

[74tom] 10/5/2023 10:59

Mortality is simply reposting the same figures I did on 28th April which illustrate the scale of the YoY H2 revenue decline.

Management have tried to spin this significant top line miss by saying it was due to a reorg, however this was clearly a surprise to ZOO given the forecasts in the market were provided in the October 22 CMD presentation alongside some fairly detailed assumptions.

What would be of further concern if I was a shareholder would be the fact the CEO confirmed that the reorg still hadn't completed, suggesting they are likely well behind their 2024 revenue budget after the first month, making a miss much more likely.

[amt] 09/5/2023 23:27

Mortal Just out of interest what attracts you to Zoo. Do you think its a shorting target ?

[rambutan2] 09/5/2023 23:13

I assume the big client is Disney, who has been the main client since Zoo started, and year's ago made up over 90% of rev. The Zoo software etc is embedded and v unlikely to be replaced. Change of leadership at Disney and subsequent delays took place in the first quarter.

I'm fairly certain that the new major client is Warner HBO, which has just relaunched...



Re AI. Zoo have tracked progress for many years, and have people working on it. But it is far off being able to do the nuance etc needed for high quality subs, which is really more an art. And as Zoo has learnt over the years, the industry itself is very conservative when it comes to any sort of change, or even acceptance of a new face.

[maddox] 09/5/2023 22:37

Hi mortal1ty,

Your point regarding revenue concentration is irrefutable and 70% from one customer is extreme. This risk has also become manifest with the client's restructure and drop in revenue. Luckily they have secured a second major studio so this dependency will be reduced over time. The fundraise for an acquisition is a statement of confidence. So, dependent on your risk appetite, this set-back might be seen as a buying opportunity.

[mortal1ty] 09/5/2023 21:55

Healthy scepticism is positive when investing. Management teams in general are always positive... until they are not. By the time they are 'not' its too late.

Little red flags go a long way in small cap investing. Share sales, funny cash flow movements, unusual management changes, slight tone in management commentary, odd blips in trading.

Its a wonder I invest in anything at all :) .

The break neck growth from 1 customer where they basically become the entire business... and then trading rolling over now, would make me very nervous as a holder. Good to hear you are 'excited though.

[ih_357751] 09/5/2023 16:50

I guess that anybody that calls themselves Mortal1ty is unlikely to be a very positive individual.
I personally like the way the business is being structured and I’m looking forward to seeing positive news once the new customer comes on line and we see added revenues from the Japanese acquisition and more strategic investments that are in the pipeline.
Exciting times ahead.

[amt] 09/5/2023 16:28

Trading update

[mortal1ty] 09/5/2023 15:59

I don't think Stuart Green has the funds to buy. He hasn't sold any. This is his baby. At least I got that impression when I met him.

[mortal1ty] 09/5/2023 15:56

Where did they explain the shortfall?

Maybe I am being too sceptical. Typically disappointments like this come in threes.

1) This is just a short-term issue.
2) Oh turns out this is actually a bigger issue than we thought.
3) We've worked out what is really happening and we will let you know now.

[amt] 09/5/2023 15:20

They explained the shortfall as due to a restructuring at their main client. I did a search and found there is a major restructuring going with a major US company which may or may not be their client. They expect production to start again soon. So it could just be a blip. The second major studio could lead to really big business aswell. It's guesswork and with any investment nothing is guaranteed. It would be good to see Directors buying to calm nerves.
They don't need cash except for the expansion and acquisitions which sound exciting. Positively Institutional investors backed the raise even though there hasn't been much interest from retail.
Difficult to judge. I think 400m usd turnover as a target is very possible and that should give a billion pound valuation. On the other hand if there is a major slowdown then sub one pound is on the cards

[mortal1ty] 09/5/2023 12:32

I found something else that should concern all holders. I think this is the most concerning piece yet.

As I have speculated previously. This massive jump in revenue from a single client is a bit weird, and we have no idea how sustainable. It could be anything.

Here are the H1 / H2 split over the past 5 years.

2019 - 14.9 / 13.9
2020 - 14.2 / 15.6
2021 - 16.4 / 23.1
2022 - 26.9 / 43.5
2023 - 51.4

When they did the placing they announced $90m minimum for the FY. That means they could have done $38.6m in H2.

This is 12% yoy decrease in H2. That is -25% half on half. Bare in mind this is a business that is meant to do BETTER in H2 than H1 due to slight seasonality.

I believe what we are seeing is the #1 customer (which is 78% of sales) moving back to more normal activity.

What this means is that in H1 next year, if the #1 customer doesn't step up business, you could be staring at c. -20% yoy growth. Sorry, but the shares will get murdered.

This suddenly makes the placing make sense. Management shoring up cash whilst the shares are up at these levels.

[mortal1ty] 09/5/2023 10:32

You will see it in lower quality areas first. Video games, social media etc. Then I guess smaller shows or documentaries to save cost or time.

To be honest, I don't think AI is the immediate risk. It is the fact that the business has become massively geared into a single client and there is limited visibility or understanding around this.

Sorry but the AIM market is unforgiving. This workflow / client stutters slightly, and the market will shoot first ask questions later.