VTAC readies for EGM as 17LIVE puts the spotlight on creator economy

If shareholders vote against the proposed transactions, the business combination will not be completed. All redemption requests will be cancelled and VTAC will be liquidated. Those who want to redeem money put in at the time of the IPO two years ago need to submit their redemption form by Nov 28.

The proposed business combination entails a consideration of up to $922.9 million. This consists of $800.8 million worth of consideration shares and up to $122 million in earn-out shares. Depending on the redemption amount by VTAC’s existing shareholders, the proposed business combination will value the enlarged group at a pro forma equity value of between $999.6 million and $1.16 billion. 

The amount comprises the purchase consideration, the cash in VTAC’s escrow account of between $60 million and $208 million, proceeds from the private investment in public equity (Pipe) financing of $10 million and the special bonus scheme amount of between $4 million to $18.8 million. The special bonus scheme refers to the allotment and issuance of 0.1 new shares to non-redeeming shareholders as well as Pipe investors. 

Trading of VTAC shares will be suspended from Nov 28 till Dec 4. Should all resolutions be approved at the EGM on Dec 1, Dec 8 is expected to be the completion date for the company to start trading as 17LIVE Group. On the same day, those who have submitted a redemption request will receive their payment while those who did not do so will receive their bonus shares. 

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Analyst recommendations

What will be the shareholders’ decision on Dec 1? While it is still unclear, PhillipCapital in its Nov 19 report recommends shareholders to vote in favour of the proposed acquisition and fully redeem their shares at the redemption price range of $5 to $5.02 per share.

Based on price to sales and EV/Ebitda relative multiple of listed peers, PhillipCapital derives a fair value of 17LIVE between US$581 million and US$700 million and when equally weighing the importance of sales and earnings plus balance sheet strength, the fair value is US$641 million. Assuming no redemption of shares, PhillipCapital’s fair value of VTAC post-acquisition is $5.08. Should the earnout shares be fully issued, the team’s fair value declines to $4.55.

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“We believe the purchase cost of the shares issued to the vendors of 17LIVE, promote shares and earnouts shares are significantly lower than the redemption price range. Based on our current fair value, we view the warrants as out of money and there is a risk it can expire at zero value,” adds PhillipCapital, one of the brokers appointed and paid by the investors’ watchdog Securities Investors Association Singapore (SIAS) to provide independent research on VTAC’s de-spac.

Investment advisory firm Beansprout, which is similarly appointed by SIAS, is recommending shareholders redeem their VTAC shares and sell their warrants. The advisory firm is valuing the 100% equity stake in 17LIVE at US$460 million, below the purchase consideration of up to $922.9 million, says Beansprout’s founder and CEO Gerald Wong.

From Wong’s perspective, 17LIVE’s near-term prospects appear to be muted — the platform’s monthly active user (MAU) has declined from 2HFY2021 following the lifting of pandemic restrictions. Additionally, the average revenue per spending user remains under pressure as users return to more offline entertainment. 

“These headwinds have more than offset initiatives by management to drive higher user engagement. Other key risks include rising competitive threats, inability to retain streamers, and regulatory risks,” he adds.

Shareholders’ concerns

Aside from questions on the sustainability of live-streaming demand on the back of post-pandemic consumer shift, there are questions regarding intense competition and post-transaction plans the company has. This is because the recently penetrated Southeast Asian market is generally unfamiliar with the live-streaming industry.

An independent market report prepared by Frost & Sullivan for 17LIVE addresses the decreasing screen time and declining entertainment expenditure in the wake of the pandemic. In Japan, where 17LIVE is based, the pandemic created favourable conditions for the interactive video streaming market’s rapid expansion with a market growth rate of 55% y-o-y on average between 2019 and 2022. However, Frost & Sullivan anticipates that the growth rate will “stabilise” although the market size would remain substantial.

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In Taiwan, one of 17LIVE’s main markets, consumers are spending less time-consuming digital content with the pandemic wearing out — daily internet usage has decreased from 2022 levels, presumably leading to a potential decline in live-streaming consumption. The notable decline in entertainment expenditure from 9.53% in 2019 to 6.43% in 2021 is a challenge to the revenue sustainability of interactive video streaming platforms. 

While interactive video streaming is gathering steam in Southeast Asia, Frost & Sullivan notes that the model of virtual gifting observed in Northeast Asian countries will not be sustained in the region. This is due to the lack of super-spending users who are willing to splurge on expensive virtual gifts for their favourite streamers. The researchers also believe that the influence of the pandemic on online viewership and spending in Southeast Asia will decrease as the region moves closer to a state of normalcy and gradually returns to pre-pandemic patterns.

Nonetheless, 17LIVE thinks it has a lot more space to grow. 17LIVE cofounder and group CTO Ng Jing Shen highlights that from 2023 to 2027, live-streaming in Japan is projected to grow at a CAGR of 22%. V-Liver — 17LIVE’s primary growth driver moving forward — is expected to grow at 41.2% during the forecast period, while live commerce is expected to have a growth rate of 43.6%. V-Liver refers to live-streamers who choose to appear on screen as animated avatars with the help of motion capture technology. 

“Beyond growing in Japan and Taiwan, where we are market leaders, we also think there are many opportunities for market geographical expansion. The big reason why we are listing in Singapore is because we see it as a great launchpad for Southeast Asia where we see the live-streaming industry is forecasted to grow by a CAGR of about 20% in the next five years. Beyond Asia, we see quite interesting global opportunities for V-Liver in the US as well,” says Ng.

According to Frost & Sullivan, the market size for live-streaming in Southeast Asia is expected to increase from US$1 billion in 2023 to US$2.1 billion in 2027, representing a CAGR of approximately 19.2%. To tap on what it expects to be a fast-growing live-streaming market, 17LIVE plans to expand by acquiring more live-streamers and users in Southeast Asia as well as collaborating with media and entertainment companies in the region, among others.

17LIVE believes it has a different proposition from the competition in Japan and Taiwan. According to co-founder Joseph Phua, aside from providing creators with all the tools required to succeed, the platform also has contracts spanning between one and seven years with over 87,000 live-streamers to create exclusive content. 

Another competitive advantage is that 17LIVE has an in-house talent management team instead of working with external agencies, setting it apart from other popular platforms across Asia. “This is a very impenetrable moat and is why we have been able to grow leaps and bounds across the last five to six years. Working with agencies means having little bargaining power, heavily impacting margins. We can secure strong margins as we control and work directly with the creators,” says Phua.

Next growth driver

17LIVE’s financial performance is also at the top of mind for shareholders, especially as its operating revenue in 1HFY2023 ended June fell by 24.65% y-o-y to US$151 million. The company posted a loss of US$118.2 million for the period, compared to US$42 million for the previous corresponding period. However, adjusted profit after including revaluation loss stood at US$9.4 million.

Phua highlights the company’s adjusted ebitda, which surged to US$15.8 million in 1HFY2023 compared to US$4.3 million in 1HFY2022. Against the challenging operating environment, Phua says the company has performed relatively well. 

“I have also been reading the news recently on the quarterly earnings of many of our competitors and other players in the market, yet I have not come across similar stellar results that we have put forward. Given our size and the region we are operating in, I think 17LIVE is quite a strong-performing company,” says Phua.

He also stresses the boom of V-Livers, which the company has identified as its primary growth driver moving forward. 17LIVE introduced V-Liver content in 2018, eventually becoming a focus for the company’s business growth plans in 2022. 

In April 2023, 17LIVE officially integrated the Live2D functions into its broadcasting functionality. This allows users to use their smartphones to upload an avatar and conduct virtual streaming without additional hardware or software — thereby significantly lowering the barriers to becoming a V-Liver. 

Following the integration of Live2D functions, the marketing of its proprietary IP called Bushilive, and offline V-Liver events, the company saw significant growth in its V-Liver business. In 2QFY2023, its V-Liver monthly active streamer grew 6.5 times y-o-y, while the average V-Liver MAU grew by 2.1 times. The average monthly V-Liver spend, on the other hand, grew by 2.7 times. Next, 17LIVE has enhanced its broadcasting functionalities, integrating more advanced 3D and hand gesture recognition features. 

In their research, Frost & Sullivan expects V-Livers to achieve significant growth in the upcoming decade, particularly in China and Japan, with Taiwan likely to benefit from a spillover effect. This growth will likely generate new marketing and advertising opportunities as brands recognise V-Livers as valuable collaborators that offer improved access to the target demographic of 16 to 23-year-olds.

Reiterating the market size, Phua believes that the market has yet to value the V-Liver industry fully and is very optimistic about harnessing this creator economy.