Growth in the fourth quarter, but market uncertainty continues
Several customers show signs of increased demand for capacity
Net Insight achieved growth again in the fourth quarter and revenue increased by 2.2% year-on-year, despite negative exchange rate effects from a stronger SEK against the USD and EUR in the quarter. Adjusted for exchange rate effects, growth was 8.4% compared to the fourth quarter 2019. Net income in the quarter was negative as a result of the substantial negative exchange rate effect. Market conditions remain challenging due to the protracted pandemic. We have introduced a large number of improvements and are starting to see the positive effects on product development, sales and internal efficiency.
Market situation and Covid-19
The reduced infection rates that we saw last summer started to head up again in the third quarter, when restrictions were tightened once more on several of our key markets. Live sports largely continued as planned in the quarter, although uncertainty about major scheduled events continued in the fourth quarter and into the new year. Our earlier assessment that Net Insight will be negatively affected by the pandemic in the first half of 2021 stands.
However, market operators are starting to adapt to the new conditions, which has led to increased interest in cloud solutions and growing demand for remote production solutions.
Net Insight’s Nimbra solutions are well suited to meet the high demands associated with remote production, including factors such as reliability, flexibility and low latency. The new reality has accelerated the trend towards remote production. When media trade association IABM recently asked its members about key trends in live content, remote production was the clear leader, followed by cloud-based solutions.
We are also seeing signs that our customers are starting to need increased capacity in their global media networks as more capacity-intensive formats are introduced (4K, 8K). There is a clear need for increased capacity as TV companies, sports leagues and businesses compete with each other to provide customers with more and better content. In the fourth quarter, The Switch, a leading operator in North America and a long-term customer, selected our Nimbra solution for the expansion of its US media network. The Switch is building a new 100G network to offer increased capacity and more services. RTVE in Spain is also upgrading its media network capacity. It is pleasing that we have succeeded in winning new customers, including Shanghai Media Group (SMG) in China.
In the quarter, we launched the new version of Nimbra Edge. Market interest in cloud-based solutions is growing and more operators are testing how they can be integrated into production. Our pricing model for Nimbra Edge where we charge per stream gives the customer the opportunity to calculate and control costs in advance. Another, perhaps crucial, advantage of Nimbra Edge is that it is compatible and integrated with the existing Nimbra and Aperi platforms. Because there are an estimated 16,000 installed Nimbra units globally, Nimbra Edge becomes part of a large existing eco system. We are well positioned and have won several Nimbra Edge deals, including with LinkedIn, SRG SSR and Tata Communications as previously communicated, which have generated revenue although still on a modest scale. We anticipate substantial growth in cloud-based solutions for media content over the coming years, a development that has been further accelerated by the pandemic. Our addressable share of this market has just started to emerge. Although the market will be limited and mainly relates to smaller events in 2021, it is expanding sharply and has growth potential in the longer term. The market is driven by remote production advancing towards cloud-based solutions for flexibility, scalability and cost efficiency, but also because distribution to content owners and networks is moving from satellite to cloud-based solutions.
We have started to see the positive effects of the measures we introduced to build the foundation for our growth journey. For example, we have increased our commercial activity and maintained a high rate of product development. One step in the transition process is to introduce a pricing model based on customer value and to clarify our packaging. The aim is to simplify and reveal customer value, and to create more stable and repeat revenue streams over a longer period.
In order to speed up progress in the quarter, we reduced the rate of redundancies for our development teams and strengthened the product team through the appointment of Christer Bohm as VP Product Management.
The continued transformation of the Resource Optimization business area resulted in further cost cuts in the fourth quarter, which are below the annual average. We assess that we meet the criteria for the outstanding US government grant loan to be forgiven, which meant that the amount was recognized as other operating income in the fourth quarter and that the business area reported positive operating earnings for the full year 2020.
The Board has decided to propose that the AGM authorize the repurchase of shares. As the assessment is that the company will be negatively affected by the pandemic in the first half of 2021, it is estimated for capital redistribution to take place in October 2021 at the earliest.
We posted a strong quarter despite the challenging external conditions. We are taking steps towards increasing our competitiveness and we are seeing clear results from our improvement activities.
Solna, Sweden, 23 February 2021
Crister Fritzson, CEO