"For those of you who are not familiar with destra, the company is an independent digital media group. DES is now Australia's largest independent CD/DVD publisher and has ownership of Australia's largest online music network. The company is growing earnings through advertising and digital content sales"
SHARE CAFE SMALL CAP SPECULATOR - 17/07/2007
We first came across destra as part of the Blue Freeway IPO (BLU). The good folk at Blue Freeway paid $19 million for Destra's web hosting business - $18 million of which was cash. This struck us as an exceptionally good deal. Mid-tier web hosting is a highly competitive global market. BLU clearly needed a business with ‘earnings' in their prospectus, DES happily obliged.
Not long after that we had CEO Domenic Carosa present at the Share Cafe Small Cap Conference. We were impressed with what we saw and since that time the stock has moved from 26 cents to 40 cents while Lachlan Murdoch has taken up a significant stake in the company.
For those of you who are not familiar with destra, the company is an independent digital media group. DES is now Australia's largest independent CD/DVD publisher and has ownership of Australia's largest online music network. The company is growing earnings through advertising and digital content sales.
Whilst destra operates in the difficult youth market unlike the more traditional media players, DES has been smart enough to recognise that the best way to capture this audience is to make them dedicated users of content before trying to flog them products. The content in destra's case is sports, pop music and youth style.
The company's key focus is acquiring and digitising this content and making it available across all of the company's business units including mobile phones, online stores and physical stores. The most important aspect of which is online as just like Facebook, My Space and other user generated content sites destra is building communities around their content.
Growing community sites around the target market makes it easier to monetise the content through subscriptions, transactions and advertising. This has been represented in the company's acquisition spree which has included NiceShorts.com.au and Brand New Media.
As with all acquisitions outside of price the key is extracting synergies out of the new entity and this is the linchpin of the destra business model and the company's digital strategy. Brand New Media for example has designed the in-flight entertainment for Virgin Blue which will show destra advertisements.
The destra story has not gone unnoticed by the traditional media players. Recently Prime Television (PRT) acquired 28m shares in DES at 26c, this equates to around a $7.3m investment and gives PRT a 13% stake in DES. Once again extracting synergies or more specifically cross selling opportunities between DES and PRT is key here. For example DES will able to advertise their existing content on PRT as well provide content for PRT's digital channel.
Destra also recently sold off its communications business to the newly listed IntraPower for $6.25 million in cash. Combined with the divestment of the hosting business this sale completes destra's transition to becoming a purely media focused entity. The Prime stake represents a reinforcement of this strategy.
No doubt some of this cash is being used to acquire Magna Pacific Holdings (MPH). DES currently fighting US film giant Lions Gate for the independent DVD distributor.
DES is currently sitting on 19.9% of MPH, if it acquires the full company it will become the largest non-studio film, video and music content company in Australia in New Zealand. It's also worth noting that DES also holds a strategic but apparently ‘friendly' 19.9% holding in Quickflix (QFX). QFX shares recently jumped 17% on news that it had entered into a strategic partnership with supermarket giant Woolworths.
Overall destra looks well exposed to the rapidly growing, if tricky markets of video on demand, social networking, digital music, online advertising and pay TV advertising.
Read Article on Share Cafe Site here.