XLMedia plc (lon:xlm)
XLM Media – Confirmation Of Web Site Issues

I understand that anything to do with search engine ranking will take time, especially where they may be conflicts between Google and the site owners.

In this case the site owner’s ideal is to provide as little as new content as possible at the lowest price whilst convincing site visitors to visit and click advertising links whilst Google doesn’t want to rank this type of site highly.

This is a tricky balance as you only need to do a Google search and see how many link site have top ranking, all advertising at the top and “content” below.

On the 11th of June the company called an EGM to seek Shareholder's approval to the adoption of the XLMedia 2020 Global Share Incentive Plan following feedback from certain Shareholders.

So I would be concerned that the board wants to pay itself bonuses that the shareholders have concerns over whilst the core aspect of the business appears to be in trouble.

In 2019 they took an £81m impairment charge, I talked about these in a previous commentary and being simplistic this means that money they spent in the past is effectively wasted, having written that money off, they are now looking to allow for bonuses for any future recovery.

Add to this a noticeable decrease in gross profits and with a market cap of around £45m are the management in this for the long term?

                     2019    2018
Revenues             $79m    $93m
Cost of revenues     $26m    $30m
Gross profit         $53m    $63m
Operating expenses   $27m    $26m

The average share volume is around 1.2 million shares a day or £280,000 so there is going to be some volatility in the share price but if the company says it can fix its Google issue then surely we have to look at the future for the business.

It has been a while now since Google deranked XL Media’s casino related marketing sites which happened on Jan 18 and was reported on Jan 20.

The full year results released on the 24 of April does not say a lot about if and when this issue will be resolved, beyond the management is of course optimistic.

In my mind it is not certain that this issue will be resolved as Google has a policy and if XL Media's sites fall foul of that policy then that is pretty much it.

I understand that in the past the group went for quantity of web sites over quality and this is believed to be the major part of the problem and Google might be sympathetic if the company reduced the number of sites it has to a much lower number.

Then again Google may not be.

But the report also says that 20 sites account for 50% of the revenues, which means that the other 50% in part at least probably dribbles in from many of the low grade legacy sites that are being discontinued.

The annual report takes a whopping $81m impairment for the loss of the value of the deranked and legacy sites, the question for me is that is this correct accounting now but next year we will see these assets inflated by say $50m or are they now recorded at their true value?

Taking this impairment out the company still made around $20m before tax.

The deranking is reported as causing a drop in revenue of between $1m and $2m per month. If sustained this would seem to suggest that the company would be just about breaking even.

My real worry is that the over the last couple of years the group has reduced the scope of its activities to what was its most profitable area, affiliate marketing and may be finding that it is not as easy as it seems.

The company has been fond of acquisitions but the risk of this is that the management get excited by the deals and found that they have bought aging assets rather than developing new sites that reflect the current users’ expectation.

By aging I mean both the site itself as it has becomes well known and liked or disliked by a large proportion of its potential users and the whole concept of the site has aged.

Worryingly I have looked at some of the company’s premium sites and the advertising is very in your face and a lot of the content looks to me like it could be almost computer written.

So do we have a company whose time has passed?

As well as announcing two new senior appointments XL Media issued an update on their problem with Google’s demotion of some of their sites.

A new CFO is probably of little interest, but Sarah Clark has been appointed Chief Transformation Officer whatever that is.

Currently 107 sites have been impacted since the initial announcement on 20 January. Of the sites impacted, over 84 are tier 3 or tier 4 sites, being sites which are typically legacy or of low commercial value to the Company. The remining (sic) 23 sites are tier 1 and tier 2 premium sites.

I found this announcement interesting as it is the first time that I have seen the idea that XL Media have websites of different quality being expressed publically, of course most investors will have worked this out for themselves but this public acknowledgement throws up some questions.

XL Media boast that they have 2,300 sites overall, yet in the casino arena they seem to be saying that roughly 84% of thier sites aren’t great!

XL Media have stated that they are going to remove the low quality sites (tier 3 and 4) from the internet as they believe that these are dragging down the tier 1 and 2 sites.

As the demotion was manual it is likely that there has been contact between Google and XLM so this is probably at least part of the problem rather than a stab in the dark.

Going forward, the Company will allocate significant resources to improving and expanding the Group's portfolio of tier 1 and tier 2 sites alongside both incubating and developing new sites.

This seems to be a recognition that quality of sites matter more than quantity, but good quality sites are often hard to create, often requiring a lot of input from real live people.

Having said this Google do rank very highly some sites where the content is updated very frequently using what appears to be entirely computer generated text.

So the question remains, is XL Media a company of the past or can it update its business model to the higher standards now being required by search engines?

Although a simplification basically the current business model seems to be;

• XL Media creates websites.


• Google advertises these sites for “free” via high search ranking.


• Users look at the site because it is high in the Google results.


• Hopefully user clicks on an advert that generates revenue for XLM.

It is easy to see why Google may object to this model as it conflicts with paid for advertising.

Clearly a search engine needs to rank good sites very highly even if this does conflict with advertising revenue, but are the XLM sites either good or capable of being converted in good?

… with no dividend expected to be proposed until further notice.

The loss of the dividend doesn’t concern me too much as the share isn’t one where the share holders are looking for a stable share price and a dividend to live off/maintain the value of a portfolio.

I would expect a big jump in the share price if and when there is an announcement that the Tier 1 and 2 Casino sites are restored, but also a possible continual downward drift if these sites can not be restored and other market sector sites become manually demoted as well.

I have found XLM an interesting share in the past as it has been in a bad news, recovery, more bad news cycle, but I have never liked the business.

The reason being that their main revenue stream seams to be the 2,300 sites that they own and use to generate revenue from pay per click advertising.

As mentioned in the previous comment I have concerns about the quality of these sites and On 18 January 2020, the Company became aware that a number of its casino sites have been manually demoted by Google, which impacts

Normally when Google manually demotes sites they send the site contact an email saying that the site has been demoted and the reason.

Generally the reason is in one of two categories, there is noting that Google objects to but it is a pretty naff site or the site is trying to manipulate Google’s site indexer.

In the first case all that is needed is to improve the quality of the site, this is simple for sites that genuinely intended to interest the reader but really difficult for sites that are Click-Bait.

The second reason can be a misunderstanding, something that was valid 15 years ago is now a No-No, or it can be very deliberate to the point of serving a different site or version of the site if the reader is the GoogleBot. GoogleBot is the name Google kindly gives (user agent) when it is reading your site so it is possible to tailor a site for site engines.

As of start of day Monday 27 Jan there has not been an update from XL Media explain this demotion in detail or an a announcement that it has been removed. This is starting to suggest that this may be a permanent situation, if so then there is reason to be worried that the company’s other sites are also vulnerable to a similar demotion.

Given that the sites that I have seen are not ones that I would go back to, the business seems massively geared to a single visit from a person and the click on a paid for link.

Without Google listing these sites highly I can’t see how this model works.

XLM Media owns more than 2,300 informational websites in 18 languages which it uses to offer advertising links both for its own benefit as well for clients, in addition it generates further traffic acting as media buying for clients.

The company has stated an intention to reduce low margin activities so there is expected to be a drop in revenue but an increase in profitably, initially the higher margin lower volume activity may show a reduced total profit.

They describe the future as Going forward, the Group's focus will be on regulated markets across the gambling sector globally and personal finance sector, particularly in North America.

Looking at two headline numbers we see Profit before Tax $25 million (2018) and $39 million in (2017) on turnovers of 117 million (2018) and $137 million (2017)

A few years ago this was a great business peaking at over 200p per share in 2018, today it is trading at 49p which is about 20% off its all time low in 2015 roughly when it listed.

When a company has 2,300 websites it is reasonable to question the quality of such sites, how can you provide useful content for so many?

Looking at those sites highlighted on the XLM website I see sites lacking in the sort of content that would make you a regular visitor, instead they seem to be link and after link with a bit of content that is pretty generic.

It may be that this type of site can continue to generate new readers who follow links or it may be the search rankings issues that the company reported as website ranking issues impacted by spamming and other attacks on key publishing assets are going to become more of an issue as search engines evolve to prefer more original content.

My own personal experience is that users are getting more and more annoyed by “click bait” sites along with more mobile phone use there is less space for advertising, although tablets have screen resolutions similar to PCs.

As gambling sites are a key focus for the company regulation of online gambling and advertising gambling is an area of real concern.

Finally XLM is an AIM listed company but its contact page says Get in touch with XLMedia’s Head Office in Cyprus, Israel operations (WebPals) and our registered office in Jersey using the details below.

It is also worth noting that the company is buying back shares, but they are being kept in treasury rather than being cancelled so they could be back on the open market again.

Despite there being no news yesterday (Apr 30) there was a £2 million trade I am too small an investor to get access to the reason for this.