XLMedia plc (lon:xlm)
XL Media - “Secrets” Being Revealed?

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XLMedia plc Share Price
Grade:The Pink Grade - A Pure Slightly Informed Gamble, The Market Doesn't Like The Company But I Think That I Understand Why.
Title: XL Media - “Secrets” Being Revealed?
Company: XLM - XLMedia plc
Share Price Then: 24.3p
Author: Ian Smith
Date: Tue 04 Feb 2020
Comments: 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.
Read Count: 390/10112

Buy/No Buy In A Nutshell
NegativesGoogle manually deranked a lot of their sites apparently because of a quality issue in Jan 2020 and no fix has been announced, suggesting that there is a real risk that there may never be a fix.
PositivesThey can fix the Google ranking issue.
Initial Review Price24p
Last Review Price24p
Last Review Date14-Jul-2020
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