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Investors Should Make Anghami Their Jam: Middle East Tech Leader Goes Public on Nasdaq

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·6 min read
In this article:
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  • Vistas Media Acquisition Company Inc. (NASDAQ: VMAC) merging with Anghami Inc.

  • Shares of VMAC will convert to Anghami after SPAC deal’s expected close in Q4

  • Anghami is leading digital music technology platform in the Middle East and North Africa

  • First mover advantage offering legitimate music in a region plagued by piracy

  • Announced partnership with Amazon Prime members in Saudi Arabia and the UAE

  • Led by CEO and Co-Founder Eddy Maroun who launched Anghami in 2012

  • Latest hires include Mary Ghobrial, Ex-Amazon Director of Marketplace Expansion

  • Sticky customer base with low 7.5% monthly churn, improved by AI-based music selections

  • Forecast for annualized revenue growth of 70% from 2021 to 2025

  • Anghami expects to become positive Ebitda this year

  • Middle East tech companies often targets for tech juggernauts looking to expand

  • Priced at 2.5x 2022 sales, well below comps Spotify and Netflix

By John Jannarone

Investors searching for tech unicorns in Silicon Valley should broaden their horizons with a trip to the Middle East.

Meet Anghami Inc., the leading digital music streaming operator in the Middle East and North Africa, which is going public through a merger with Vistas Media Acquisition Company Inc. (NASDAQ: VMAC), a SPAC that raised money to find a target. The deal is expected to close later this quarter, after which VMAC shares will automatically convert to shares of Anghami.

A bit of history is important to understand Anghami’s success – and future opportunity. Similar to other emerging markets, the Middle East has been dominated by pirated music for many years even as legitimate options took hold in other parts of the world. The situation was painful for media owners and also for listeners who had to hunt for bootlegged albums and songs.

That created an opportunity for Co-Founder and CEO Eddy Maroun, who launched Anghami (meaning My Tunes in Arabic) in 2012. Mr. Maroun recognized that listeners would be willing to listen to ads in exchange for readily-available music and many of them would also be willing to pay monthly subscription fees for ad-free music. Anghami was three full years ahead of Apple’s iTunes and six years ahead of Spotify and Deezer, a smaller rival operator in the region.

Fast forward nearly a decade and Anghami is far and away the region’s streaming leader, commanding 58% market share. Arabic-language music is Anghami’s core offering and it focuses on top artists within each of the 16 countries where it operates across the region, making deals with music labels to secure specific rights. The company has consolidated and digitized local music from an array of labels that previously wasn’t even available in a legitimate digital format.

It would be very difficult to replicate the business Anghami has built. Regulatory obstacles in the region can be serious, particularly when it comes to media assets. Saudi Arabia, for instance, only recently allowed movie theaters after a 35-year ban and has been very selective about granting licenses to foreign operators.

But Anghami has secured regulatory approvals across the region – from Morocco to Levant – thanks to local expertise and relationships. It’s also notable that SHUAA Capital psc. (DFM: SHUAA), the UAE’s premier publicly-listed asset management and investment banking firm with about $14 billion in assets, is investing in the deal.

Turning to the future, Anghami has several avenues of growth to pursue. First, Anghami has partnerships with three dozen telecommunications companies across the region. That’s important because many customers don’t have credit cards and want the Anghami service to simply be purchased with prepaid phone credits.

Those operator partnerships do even more for Anghami. The company can get closer to customers with specialized marketing campaigns and even get more information about consumer trends and preferences in each local market. Again, those relationships present a major barrier to entry for would-be competitors.

There is tremendous potential to attract more streaming customers. In Anghami’s existing markets, penetration is generally well below 10% – in some cases even less than 2% – compared with 35% in the U.S. where music streaming has thrived. And roughly 45% of the region’s population is between 10 and 35 years old, an ideal age range to target.

Another characteristic of the region that should underpin subscription demand is cost of wireless data. Unlike the U.S., where many phone plans include unlimited downloads, many parts of Anghami’s operating region make customers pay high fees for data. That means listeners need to download music when they have Wi-Fi – which requires a premium Anghami subscription – if they want access to music on the go.

Artists themselves also prefer to be on a platform where they have the largest following. For instance, Lebanese artist Nancy Ajram, known as The Queen of Arab Pop, has 15.3 million followers on Anghami. On Spotify, she boasts under 1.3 million followers, according to latest data on both apps reviewed Thursday by IPO Edge.

As with most any media market, content is king. And Anghami creates its own content with local artists very effectively, with a 60% return on investment. The company plans to invest further in original content with proceeds from the SPAC deal, likely extending its lead in that vertical.

Anghami also has social media elements that keeps users on its platform. Once downloaded, the app can serve as a way to communicate with friends, similar to the way many users of Facebook’s Instagram stay in touch. That makes users less likely to delete the app or risk falling out of touch with their personal contacts.

And while subscriptions account for the lion’s share of revenue, advertising can also be a big growth area. As Anghami’s audience grows, and remains highly engaged, multinationals such as PepsiCo and McDonald’s have already embraced the opportunity to reach the company’s captive audience with ads.

Anghami’s success translates to an impressive financial profile. It expects to become Ebitda positive this year and will have a net cash position of about $142 million to invest in marketing and content to help extend its lead. Revenue is forecast to grow at an annualized 70% between 2021 and 2025 – faster than some of the world’s most famous tech unicorns.

Anghami trades at an implied enterprise value of 2.5 times 2022 sales. That’s well below the best comparable companies: Spotify has a multiple of 3.3 times while Netflix trades at 8.4 times, according to Sentieo, an AI-enabled research platform.

Last, there is real reason to believe Anghami could become an M&A target itself and fetch a handsome premium. Given the challenge of building a media company from scratch in the region, a larger tech company would almost certainly prefer to buy one. Just look at Uber’s purchase of Careem in 2019 and Amazon’s acquisition of Souq in 2017.

These days, the selection of promising tech companies for investors is vast. But with its lead positioning, enormous barriers to entry and superior brand power, Anghami belongs on your playlist.

Contact:

John Jannarone, Editor-in-Chief

editor@IPO-Edge.com

IPO Edge

Editor@IPO-Edge.com

Twitter: @IPOEdge