Since the end of July, the 7digital (LSE: 7DIG) share price has jumped a staggering 720%. This achievement has made the stock one of the best performing investments on the London market this year.
It has also put the company on the radar of most small-cap investors. As such, I think it’s likely that the improving investor sentiment towards the business could send the 7digital share price even higher in the near term.
If you’re interested in owning a share of this high growth small-cap, here’s what you need to know before investing.
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Time to buy the 7digital share price?
7digital is the global leader in B2B end-to-end digital music solutions. Put simply, the company works with businesses to provide access to music. It also offers services such as radio production and content management expertise.
It has agreements with large record labels to provide content. For example, the business recently signed a contract renewal with Universal Music France to support its streaming service through MVNO La Poste Mobile, one of France’s most popular mobile phone networks.
Unfortunately, the company has struggled to turn the strategy into a profitable business. Between June 2019 and the beginning of this year, the organisation raised £5m of funds from investors and creditors to remain solvent. It also slashed costs by half, producing estimated annualised cost savings of over £7m. This lack of income has weighed on the 7digital share price.
However, with much of its revenue for 2020 already contracted at the beginning of the year, management was forecasting operational profitability by the end of Q2 2020.
The pandemic disrupted these plans. The firm recently noted that “certain new contracts and renewals” shifted from the second quarter into the second half. The company now expects to achieve operational profitability during the second half of this year.
If it can hit this target, it’ll be a big step forward. I think it could also have a positive impact on the 7digital share price. But this projection was put to shareholders before the company announced its most significant deal to date.
Game-changing deal
Earlier this week, 7digital announced that it had agreed on a contract with a “global technology company” to provide access to its global music catalogue as well as other services. The agreement will run from August into 2021.
The company hasn’t published the name of this party, but the very fact an international technology group is willing to sign an agreement with the business shows 7digital’s growth is just getting started.
As such, I think it may be worth buying the 7digital share price as part of a diversified portfolio today. Music streaming is a huge market. Despite the stock’s recent performance, it’s still tiny compared to peers such as Spotify.
If the business can leverage and build on its latest global deal, stockholders may see substantial returns on their investment in the years ahead.
