System1 ploughs investment into 'ad effectiveness' rating service
System1 is continuing to invest heavily as it prepares to launch its new advertising effectiveness ratings subscription later this year, but warned it had a loss-making half year as a result.
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The AIM-listed group's new service will provide its clients with access to a large database of adverts broadcast in the UK and the US, all of which have been rated using System1's advertising effectiveness measures.
System1 believes Ad Ratings will enable clients to compare the effectiveness of their adverts against competitors and allow firms to weigh advertising effectiveness against their media spend.
In its Monday morning trading update, System1 also revealed that it was "investing a significant amount" in developing this service, something it views as having "strategic importance both in supporting the current business and in broadening the use of its core intellectual property to create new scalable revenue streams".
The firm has invested roughly £1.8m throughout the first half of the trading year and expects to make a further material investment during the last six months of the year.
System1 said its investment was being undertaken at a time when "current business revenues are stabilising, albeit at a slower rate than anticipated".
As a result of lower operating costs, System1 anticipates a return to growth in operating profits when it turns in its first-half results some time after 30 September.
Broker Canaccord said the Ad Ratings subscription service is "an exciting opportunity for System1 to create a high margin, high visibility and scaleable product designed to improve advertising efficiency and therefore reduce costs for agencies/advertisers (a powerful message in the current environment)".
"This is the first time management has reported the costs, which are material for SYS1 and clearly reflect confidence in the potential returns," analysts said.
They expects £3m of up-front investment in the next financial year, "around half capex and half start-up losses", but this should moderate substantially and move towards break-even in FY20. "We intend to treat start-up losses as exceptional, as we view this as discretionary investment - if the business fails to generate profits it will be closed/downsized rapidly."
"Future investment will depend on the success of the product in its launch markets of the UK/US. Ultimately, it could decide to launch a global database, if it is confident in the returns that it can generate."
As of 1000 BST, System1 shares had dipped 4.72% to 222p.