I have been following this stock for some time ( and am underwater on it) and here is my humble opinion after reviewing the notes from the conf call. I don't profess to be an expert in mobile anything, but am just trying to use my experiences as a tech entepreneur over the years.
My sense is that the company was operationally a mess and probably unfocused. . Looking at the steps taken to correct the situation tells me a bit about what they were like before...
1. Revamping sales - they stated that they are hiring experienced regional sales folks to oversee specific areas, thus freeing up the overall "corporate" sales mgr to pursue large accounts. This indicates that the guys they really want selling were spending too much time on admin and were likely not properly focused on sales. They are now taking steps to correct that situation. This is very good. You always want your sales guns focused.
2. Separating the IP - they are seeking to unload the day to day mgmt of the IP in some way, to save money, but I would also guess, to bring more focus to the day to day operations. Management was likely splitting time between IP tasks and regular business tasks. Offloading IP in some way should bring them back into focus . This also is very good in my opinion.
3. Trimming the fat - always a good way to bring more focus into an organization. Look at each function, position etc. and see if it is needed.
These are all good steps that indicate the current mgmt is whipping the company into shape. Again, very good from my perspective.
So it all comes down to 2 things in my mind...
1. the first is cash..... They indicated in the call that they have a cash problem. So going forward they are going to have to issue more stock, or come up with an internal way ( possibly via IP) to generate some cash. Others have already discussed this but I guess the bottom line is that the issue is out there and has to be dealt with. Assuming they can deal with this and keep going .........
2. the second is the business they are in. Having a great company doesn't really matter if the market they are selling into sucks. Many have talked about the growth in mobile this and that, and it certainly looks like the market is ramping up, but is Hipcricket actually doing well in this market? I just don't get it. The revenue, while increasing, still looks very light when considering the total dollars that are being spent in this area. So either the business segment that HipCricket is operating in isn't very large yet, or they are not really getting their share of the business segment that is out there. Of course, then, I have to ask the question, why not?
If the answer has a lot to do with the organization itself, I would feel very good about the stock and the steps they are taking. But if the answer has to do with the HipCricket product just not winning the business that is available for some reason , then I am very nervous about it. For now I am holding and trying to figure out the answer to that question.
Something just doesn't seem right to me. I would love to hear others comments.
One other thing to add to the excellent posts of sirius_yomamma, mobileguru, imiami, trendsbroken4now12, and others is that the patent portfolio that Augme currently owns, gives them the earliest priority date for the foundational aspects of the technology such as behavioral targeting, etc., used by the largest media companies. The company currently has 6 (or is it 7) active suits against competitors/infringers, with very favorable markman rulings in several cases, and others pending. Once validated by a settlement or court ruling, Augme/HC will have a decided advantage over others in the space and would be considered gatekeepers to some extent. In addition, the company has filed around 100 patents covering the same space, most which are in various stages of process.
It is a touchy and complicated issue as you can imagine because there is competition for resources in a small growing company, so for now, the IP enforcement effort must take a back seat to core growth, but rest assured, it will come back to the forefront as some of the court cases near closure, and funding issues are brought under control.
Sirius_yomamma is very good on this issue and can tell you alot more about the value and status of the intellectual property.
Great reasoning Chima....to your second point I would offer that you have to understand that the mobile Advertising "era" is at the similar point in time as the Internet in early 90s. The potential for this market is much bigger then online advertising and will growth at much faster pace as well. The main strength of Augme is in the mobile "marketing" arena as it encompasses the end to end process that an ad agency would go through for their client but only on a single platform. However, we are only at the infancy stage of the Mobile Marketing in that sense. What you see with MM and P numbers and how fast they grow is because the Mobile "Ad" network has a bit more maturity to it as in the agencies and clients know and understand it better then transforming their current "marketing" to an in house all encompassing platform like Ad Life. Mobile Ad is a much easier and faster entrance to the mobile arena then Mobile "marketing" which is longer process and one must have a deeper understanding of the entire process. As stated on the CC, Mobile Marketing is still at a very early infancy stages and it will take a bit longer to be where Mobile Ad is today. As such, the creation of Ad Serve product last year was a huge step for the company to enter this fast growing sector where there is lot more "easy" money exists and it can better compete with MM and the P of the word. If you notice these two have much higher revenue base with an exponential growth in the past two year. If you look at the growth rate in our Ad Serve business you will notice that it has been growing exponentially as well but since we start only a few months ago it has not reach the critical mass. That will change quickly as not only we can address clients need from a total marketing package, the one and only company that can, but we can now offer ala cart Ad campaigns to existing and new clients which will better compete with MM where it enjoys one of the largest mobile ad networks in the industry. The kicker though is 2 years down the road where MM and P can not offer the end to end mobile marketing capability like Agume on a single easy and powerful to use platform but those clients that choose to start with Augme on mobile ad can easily add the AD Life to their existing campaigns!
This is the story of "the turtle and hare"....we might have started slowly out of the gate but the winner will be Augme in 3-5 years.
Sentiment: Strong Buy
For the 9 months ended 11/30/2011, Augme did $6.9 million in revenue. For the 9 months ended 2012, they did $18.7 million. Those numbers seems extraordinary to me, when you consider the distractions of the prior management. How many companies to you own grew their revenue by 271%?
When you consider where we are in the evolutionary cycle of the medium and that the space was just brought about by the advent of the I-phone as discussed earlier, it is impressive. We are still just in its infancy. It's amusing all these negative posters refere to the past when it wasn't even the same company and had totally different management. Look at Braikers own words from the call. Maybe some will better understand coming from him rather than me. Either way, I don't care because we're both right.
"I think when you look at what’s going on right now in the industry where Smartphone adoption has become well over 50% now and mobile is still in a nacent state. When you look at the differential with time spent on media, the one that’s the furthest from a parity is mobile. You have less than – around 1% of the ad dollars, I guess 11% to 12% of your media time. That data represents billions and billions of dollars. So I think all of us in the mobile space that that is going to be an inflection point and that inflection point is yet to even become close to being hit. So the ad dollars are still there. They’re growing. We don’t see anything slowing that down. I think if anything we’re very optimistic that we’re approaching this from a very conservative aspect and believe that these numbers have a good capability of growing even faster than we’re calculating."
Miami, I actually have a few companies on my list of holding that grew rev by 271% and over (YOY). The better question is, name me a company doing such remarkable rev # as AUGT is doing and yet have such dismal numbers as shown in Yahoo. In this same period revenue grew 4.9X from previous year but losses more than doubled? No wonder they are trying to do some quick patch up work internally, this company is a mess and need to use their cash more efficiently. They are early in the game and have potential, but speaking of now they have some serious issues. Moving forward might get better. Will see. Please prove me wrong.
Ended Feb 28, 2012 : Loss (29,884), Rev (7,800)
Ended Feb 28, 2011: Loss ( 12,478), Rev ( 1, 570)
Profit margin: -156.43
Operating Margin : -161.49
Free Cash Flow: -18.8
As per the size of HC business, and their ability to capture a larger percentage of the business, consider there are obvious larger competitors with deep resources such as FB, but also consider that the entire market is very large and multifaceted compared to any one supplier. I'm not so sure when you hear of the size of the total money being spent, that that is all just what HC does. They only supply a small facet of the industry. The computer industry is huge, but Intel only supplies a facet for the entire market, so it is with Augme/HC. They are a creek getting bigger that flows into a river getting huge.
As for the AdLife platform HC uses, and HC themselves, they are very highly regarded by their customers with a 95% retention rate. The demand and growth at 15 to 20% q/q exceeds the company's capital resources, and ability to keep up with it. They could grow at a faster pace, given more adequate resources. In short, they are winning the business.