Whitefish, MT / May 5, 2014 / CrowdGather Inc. (CRWG), a leading owner and operator of online communities and social networks, recently announced the acquisition of Boston-based PLAOR for approximately $5 million in stock. The move marks an ongoing shift by management towards mobile apps, social gaming, and hosted forums rather than its wholly owned and operated forum network.
In this article, we'll take a look at the company's move into the social gaming industry, transition away from it's vertical interest, owned and operated forums, and what these developments might mean for both shareholders and potential investors.
Move into Social Gaming
The social gaming industry is expected to grow at a 16.1% CAGR to reach $17.4 billion by 2019, according to Transparency Market Research, driven by increasing demand for smartphones and tablet PCs. Innovations in the provision of virtual goods helped generate approximately 60% of the revenue in the industry by 2012, followed by advertising revenues from more traditional venues.
PLAOR is an emerging new social gaming publisher led by industry professionals from Microsoft Corporation’s (MSFT) XBOX team, Disney Company’s (DIS) Interactive division, and Sony Corporation’s (SNY) Online Entertainment division. According to a recent press release, the company is generating approximately $1 million in revenue on an annualized basis with over 20,000 average daily users.
Leveraging CrowdGather's existing users and capital markets access, PLAOR should be able to significantly grow its revenue and user base over the coming years, particularly given the industry expected 16.1% CAGR through 2019. The existing users in particular should provide immediate synergies to boost the number of daily active users within the next couple of quarters.
"Our expectation is that we will emerge from this merger as a stronger and faster growing business," said CrowdGather Chairman and CEO Sanjay Sabnani in a recent press release. "Our vision is to create an exciting, high growth company that will leverage our traffic, users, and social media reach to provide PLAOR's titles with immediate access to hundreds of thousands of potential players for their games."
Restructuring Legacy Business
CrowdGather has been undergoing an extensive restructuring over the past few quarters aimed at reducing its costs and focusing on high-growth alternatives that better leverage its mobile users. In addition to making acquisitions, management plans to continue to monetize and improve the user experience on its remaining online communities, including its hosted forum communities.
On May 2, 2014, company entered into an agreement to sell certain related website and domain names for $1.38 million, according to a recent 8-K filing with the SEC. The cash generated from the sale will be used to bolster its balance sheet and reduce its operating expenses, while freeing up capital for management to make additional higher growth acquisitions.
Last quarter, the company reported revenue of $446,201, gross profit of $445,498, and a net loss of $338,597, or $0.01 per share. While revenue and gross profit were marginally lower, the company’s cost-cutting efforts succeeded in substantially reducing its bottom-line net loss. Shareholders’ equity of $14.1 million also remained significantly higher than its $4.5 million market capitalization.
"By divesting ourselves from our owned and operated forums we intend to free up resources and procure working capital while still maintaining nearly 80% of our monthly traffic and users," added Mr. Sabnani. "We believe that access to our user base is potentially a tremendous competitive advantage for PLAOR's titles and will improve the forum experience for our users."
CrowdGather's move to acquire PLAOR and sell off some of its wholly owned properties represents a significant change in its business model that could catalyze the stock moving forward. Meanwhile, management’s efforts have greatly reduced its net loss and brought the company closer to a critical breakeven point. The combined efforts could unlock significant value over the coming quarters.
Management has also remained bullish. CEO Sanjay Sabnani purchased has been a consistent buyer of the stock, including a December purchase of 166,500 shares at $0.06 to $0.074 per share. Director James Sacks also purchased 50,000 shares in January at $0.065 per share, according to regulatory disclosures. These transactions highlight management’s commitment to the success of the company.
On May 1, 2014, the company also appointed PLAOR's Richard Corredera as its Chief Operating Officer. With 18 years of experience in software engineering, systems design, and business development, Mr. Corredera served as President and COO of PLAOR, co-founded DoubleTap Games, and served as Technical Director at THQ's Helixe development studio and Sony Online Entertainment in the past.
"I am excited to welcome our new Boston-based employees to the family, and I especially look forward to working with Richard Corredera," concluded Mr. Sabnani. "Our hope is that the combination of high margin, passive advertising income from CrowdGather's network of hosted forums combined with PLAOR's gaming related revenue streams will result in a more rapid pathway to profitability."
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SOURCE: Emerging Growth LLC