VisionChina Media: Looking Ahead

VisionChina Media's (VISN) business model is not complex. They have executive ad agency contracts in five cities and have Joint Ventures with local TV stations in 11 cities. They buy advertising time slots and then sell them to advertisers or advertising agencies.

Unlike Focus Media's (FMCN) 60 circle times per day, VisionChina delivers real time programs like news and sports to audiences with advertising. And they can do it with time specific, location based information, driving revenue from soft ads like sponsorship. In this case, VisionChina is very much like a traditional TV ad agency. For an advertiser, VisionChina is actually in a better place than traditional TV because their audiences have no ability to change the channel.

They also have differences with Air Media (AMCN), including the fact that VisionChina does not pay for the broadcasting programs like news, sports and stocks quotes while AMCN does.

If you compare the CPM between VisionChina, FMCN and the local TV station in Beijing, you will see that the CPM of FMCN is 1/4 that of the local TV station while VisionChina's CPM is 1/34 of the local TV station, indicating huge upsides for VisionChina; because of their long term contract with local TV stations, CoGS is relatively fixed, so with increase revenues, gross margin will go up.

As a very new player in the outdoor advertising market in China, VisionChina has had very strong growth in the past years. Revenue growth QoQ from Q206 to Q307 is 128%, 22%, 137%, 67%, 39%, 98%, CQGR is 77%. In the next 3 years, there are many positive factors for revenue growth like a higher rate card, higher utilization, more soft ads sold, Olympic impact and so on.

Based on research, the advertising market in China may potentially have 25% YoY growth from $14.7 billion in 2007 to $18.3 billion in 2008. A few weeks ago, the public bidding price on CCTV golden time advertising slots was 8 billion RMB, compared to 6.8 billion RMB in 2007 with 18% YoY growth. FMCN has raised their rate card by 11% in commercial locations and 40% in Framedia. Air Media has raised their rate card by 53% in the Beijing airport (partially because increased capacity by a new contract with the Beijing airport), and 15% in Shanghai's two airports. In accordance, I expect that the rate card with VisionChina is to up 25% to 50%

Meanwhile, according to our September 2007 data, total buses signed by VisionChina are 36,472 with 26,511 installed digital TV screens. The rest will be installed before Q1 2008, at which point the current capacity will be up 39%. We know advertising is a scale economic business and revenue directly relates to capacity. That will be a big incentive in 2008.

After January 2008, mobile digital television advertising operation in Chengdu and Ningbo will change from a direct investment model to an exclusive agency model, which will enhance VisionChina's gross margin and net margin.

If we consider a potential acquisition increase, network expansion, increased customer recognition and other positive incentives, revenue growth of VisionChina in 2008 may reach, at the very least, 90% to 130% (1.25*1.39*1.1=1.91; 1.50*1.39*1.1=2.29).

The forecast above is based on information from professionals with some uncertainty. After further information or field survey, we may have a better understanding of VisionChina's next 3 years of operation.

Disclosure: none