Shares in Dreamscape Network Ltd [ASX:DN8] were down 41% to $0.14 at the time of writing, after opening at $0.23 today.
The online domains, hosting and solutions provider released a market update today. According to the update, Dreamscape’s revenue is down due to rising costs, and market conditions.
Dreamscape expected the adjusted EBITDA to be in the region of $2.8-$3.2 million. This is down from $5.2 million in the corresponding period first-half financial year 2017.
The company cited a rise in personnel, administrative and marketing costs of approximately $2.5 million compared to the first-half 2017, as the main reason for the lower figure.
The firm will announce its reviewed results for the first-half financial year 2018 on 22 February.
The marketing cost alone blew out $1.3 million, partly due to the acquisition of Crazy Domains and the subsequent associated cost of marketing the brand in South East Asia.
Personnel costs increased by $0.9 million and administration costs by $0.3 million. Factored into the increased costs is Dreamscape’s emergence as a publicly listed company in December 2016, and also generally weaker conditions across the company’s domain and hosting services.
While Dreamscape’s Crazy Domains brand has continued to build its market share, the downturn in trading conditions has resulted in a 6% reduction in bookings domestically.
On the other hand, Dreamscape’s Singapore based hosting business, Vodien Internet Solutions, has grown 20% in terms of EBITDA and bookings. Dreamscape expects consolidation of its offices to lower costs, proposing to close its Perth and Dubai offices, and integrate them into its head office in Singapore before 30 June 2018.
What’s next for Dreamscape?
The company predicts further reductions in costs once it integrates its recent Australian acquisitions (Net Logistics, Enetica Group and Quadra hosting) into Dreamscape’s infrastructure.
Dreamscape still feels there is room for growth in the local market, pointing out that 59% of Small Medium Businesses (SMBs) in Australia do not have an online presence.
Dreamscape intends to target these SMBs, using its subscription model to highlight future visible revenue due to upfront payment of products and services.
The firm’s subscriptions range from 1–10 years (with an average term of two years) and can therefore generate significant cash flow for the company.
Will Dreamscape bounce back from today’s hit?
Could this be a sign of an overall downturn in the economy?
Australia may be headed for its first recession in years, according to Vern Gowdie. Read his free report now: ‘The Aussie Recession Survival Guide’.
Editor, Markets & Money