TINYBEANS Group Ltd. (TNY)
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TINYBEANS Group Ltd. (TNY) Investment Highlights Tinybeans (TNY) is a photo journal app that allows parents to organize their children’s memories, milestones, and growth. TNY’s mission is to create happy memories for every family by providing a platform to track their child’s https://tinybeans.com growth and development, at the same time creating a safe and secure social platform where they can share their photos with friends and family. April 23, 2019 ■ Our Thesis: The leader in U.S. social media and social networking service Valuation Coverage company, Facebook, has never seen its clear leadership challenged, and its lead in profitability has been only widening over time. We believe an Interactive Media & Services marketplace with a family and parent focus will Equity Research share a similar path, with TNY enjoying unchallenged leadership and disproportionate scale benefits. ■Key Debates: Will Media & Services competition, in particular traditional Analyst: Quang Ho media companies, launching direct-to-parents services, hamper TNY’s user (518) 256-4267 growth? Will TNY’s business model ultimately prove attractive (pricing power, margins at ultimate scale)? S hould investors now conceive of TNY’s [email protected] market universe as a privacy-enabled child memory sharing platform, a much safer base in coming years, rather than other platforms? Price (US$) ■ Catalysts: The predominant driver of TNY shares, in our experience, has 04/23/2019 been quarterly user growth. $0.48 Getting more engagement, extension and usage. Creating more value for Price Target * $1.81 parents so they could spend more time on the platform in order to boost the 52 week high $0.52 revenue streams; advertising, premium and printing services. 52 week low $0.15 The primary focus will be time spent in the TNY app. In the first half of 2019, TNY plans to launch an updated app experience that will drive significant increase in time spent in the app. Shares Outstanding (millions) Advertising will continue to grow with the improvement in ad tracking for larger advertisers. TNY will integrate new ad network partners to increase Basic Shares 32.508 demand, impressions, and revenue. Fully Diluted 32.508 ■Valuation: TNY is very undervalued on any traditional measure, although it is growing rapidly and investing aggressively to scale its’ business. We believe it is necessary to analyze long-term prospects to properly gauge. Capitalization (US$ millions) Current Market Cap $15.6 (As at 04/23/2019) Target Market Cap* $58.8 1 Executive Summary The market for family photo sharing is enormous: According to the National Center for Health Statistics, 3,853,472 babies were born in the United States in 2018. Globally, there are 165 million newborns born each year. The enormous market of parents and family members will capture a significant opportunity for TNY’s long- term growth. Even if we limit Tinybeans’ target market to the United States only, we see the ability for Tinybeans to reach at least 40 million users within the next ten years. Unique platform built on trust: The biggest challenge in the family services industry is building trust. Building trust with parents is significantly harder than building trust with other consumers. Tinybeans is building out a platform to connect all services, products and contents that serves those users based on a unique data set with enormous trust from parents. Most of TNY’s users are acquired from organic growth; word of mouth referrals by existing users and informal marketing by TNY users or Tinybeans referrals. This reflects very well on user experience and drives the trust-based platform created by the company. Strong user growth: In registered user terms, Tinybeans reported user growth of 40% to 3.2M in March 2019 from 2.3M in March 2018. The number of monthly active users also rose to 1.14M from 884k in the same period, representing almost 40% year-on-year growth. On average, TNY gains one new member every 30 seconds. The statistics shows that Tinybeans is on a clear path to achieve its’ ambitions and become the market leader. More growth options available to support the business: Despite the lack of extensive marketing campaigns, TNY has achieved organic growth, mainly from word of mouth or informal marketing, and still has impressive growth rate in terms of users. For the next few years, with the transition to marketing campaigns, partnerships and acquisitions, the Company is hoping to get a more accelerated user growth rate from 50 to 70% y-o-y. Effective revenue streams: The Company has three main revenue sources brand advertising, printed products, and premium subscriptions. As a result of TNY’s strong user growth, advertising revenue has proven to be lucrative of their business. As of March 2019, the Company had Advertising revenue of $541.73k USD versus $188k USD the previous year, equaling 188% growth. For Printing, the total revenue was $109.1k USD in 2018 compared to $164k USD returned from three recent quarters of 2019, which highlights a significant growth in Printing revenue for the Company by the end of Fiscal year 2019. Premium subscriptions seem to have the least growth in TNY’S business model with $133k USD in Q3 2019. Tinybeans has a business model that has proven it can generate significant revenue growth for years ahead. We certainly admit that investors need to look to the longer-term opportunity for Tinybeans’ valuation to appear appealing. That suggests we are undertaking unusual short-term volatility risk around quarterly earnings results, in which growth might have fits and starts due to seasonal and other dynamics that do not reflect any shift in the long- term outlook for Tinybeans. Short-term quarterly earnings risk and other negative catalysts would suggest the long- term bull case for Tinybeans is off the mark. While a short-term pause would be unlikely to affect its competitive positioning, it would certainly cause investors to reconsider long-term growth opportunity. 2 Investment Thesis in Charts Enormous Market Opportunity, Still Early Days Figure 1: Market Opportunity: What is the right way to think about Tinybeans’ Total Addressable Market? We only consider U.S. households in our forecast, but global households could be a major driver in the future. Number of US Households with children by age (MMs) 18000 16843 16000 14000 12000 9352 10000 8305 8000 6000 4000 2400 2000 0 6-11 years 3-5 years Under 3 years TNY User Sources: KPG data Figure 2: The significant growth of Social Media: There will be a positive correlation between Tinybeans’ user growth and Social Media market growth. Source: Pew Research Center 3 Privacy Concerns Figure 3: Privacy worries are on the rise. More users, especially young parents, are looking for a safer place to share their children’s memories while avoiding being observed or seen by certain groups. Who users try to avoid % of adult internet users who say they have used the internet in ways to avoid being observed or seen by Law enforcement The government Companies/people who might want your payment Companies/people who run the website you visited Employer, supervisor, coworkers Family members or romantic partner People who might criticize / harass you Certain friends People from your past Advertisers Hackers or criminals 0% 5% 10% 15% 20% 25% 30% 35% Sources: KPG data Figure 4: Users report that a wide range of their personal information is available online but feel strongly about controlling who has access to certain kinds of behavioral data and communications content. Personal information online % of adult internet users with online information about themselves Your political party / affiliation Video of you Your home phone number Your cell number Which groups/ org you belong to Your home address Things you've written using your name Your employer / company you work for Your email address Your birthdate A photo of you 0% 10% 20% 30% 40% 50% 60% 70% Sources: KPG data 4 Business Overview Product Design & User Interface The Tinybeans platform is a secure online journal that enables parents to upload and share photos, videos and milestones of their children with anyone they choose, by inviting families and friends to have access to the journal. Not only is it safe and simple to use, but it also stores photos and milestones in an organized fashion, a calendar- like system that encourages young parents to capture every moment of their kids every day. To build habits with parents and drive their daily engagement on the platform, Tinybeans lets parents set reminders which will prompt to inform that they have not yet uploaded a photo or video to the site on that day. Tinybeans offers various features on their platform; organized, accessible and calendar-centric photos and videos, fun stickers, text and filters, and a special firsts feature such as a first word or first walk. TNY printed services also allows parents to keep their memories in photobooks with elegant designs. 5 The Tinybeans app has been very well-rated on the iOS and Google Play Stores with more than 60K reviews, and a 4.9 out of 5.0 rating. Most of the comments are about how truly excellent the platform is because of its stress- free ways to share moments and photos, together with its user-friendly interface with no privacy concerns, and ability to bring happiness and cherished moments to families. Besides positive thoughts from users, Tinybeans also receives constructive feedback, which is a critical element to help the Company improve the quality of their services. We also note that Tinybeans has done an excellent job interacting with their users to address problems and build trust by responding almost 80 percent of the total reviews.