AUGT is the symbol for Augme Technologies (AUGT.OB), but it looks like something Charlie Brown might say when Lucy has again pulled the football back just before he kicks it. For the long-time Augme shareholders who are still holding on, AUGT has been much worse than a word uttered in surprised frustration, it has become a four letter word that is worse than any profanity restricted by the FCC. Many investors purchased AUGT shares hoping to see the company's portfolio of patents produce hundreds of millions in settlements, judgments and licensing fees as the company pursued an aggressive (and expensive) IP litigation strategy. The upside potential seemed enormous, as the company's mobile patents appear to cover many types of customized content delivery to internet enabled devices as well as methods for content targeting based on a wide range of factors. AUGT had also acquired a number of VOIP patents and in total owns 13 US patents along with 58 applications pending with the USPTO. Given the well capitalized companies like Pandora (NASDAQ: P), Millennial Media (NYSE: MM), Velti (NASDAQ: VELT), AOL (NYSE: AOL), Google (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT), Netflix (NASDAQ: NFLX) that appear to have operations that prima facie infringe on some of these patented processes, there were many who believed the company would be able to extract large sums from each by pursuing this strategy while also growing its Hipcricket (wholly owned subsidiary of AUGT that is one of the most fastest growing companies in the mobile marketing / advertising space) business. AUGT shareholders have endured a different outcome, where litigation drags on for years and drains the company of cash with very little in the way of judgments, settlements or licensing revenue to show for it. This eventually required AUGT management to go hat in hand back to the marketplace to raise capital several times (see here and here) in rapid succession and this has had the kind of negative impact on AUGT's share price that one might expect.
AUGT was trading at 89 cents less than 50 days ago but saw its valuation destroyed as word of another dilutive offering pushed the price down below 60 cents and resulted in the actual placement occurring at 49 cents on January 30. Since that time, the perfect storm has emerged to push AUGT down further as investors digested poor quarterly reports by Millenial Media and Velti (two of the largest players in the mobile marketing/advertising space), the departure of its interim CEO and the settlement of the company's case with AOL for a sum ($650k) many found to be disappointing. As often happens with micro-cap companies that experience a flood of news that is perceived as negative in a very short time, the decision by some significant holders to sell their stakes was met by more selling which begat more selling and the stock fell another 40%. AUGT has fallen 67% in the 50 or so days since reporting a very stellar quarter for the Hipcricket business that was (as usual) overshadowed by the cash draining IP litigation results, even though the company had already announced plans to refocus its resources to grow the Hipcricket business.
While we recognize that there may be some volatility in Hipcricket's results going forward and we acknowledge the potential for hiccups from a micro cap operating in an emerging sector that is growing so rapidly, we believe the company may reach operating break even on a monthly basis before the end of the quarter that starts tomorrow. Also, we see evidence that Hipcricket is increasingly viewed as a "go to" mobile marketing partner among those who matter most (media buyers who drive large company ad budgets) even though its rapid growth in revenue and stature among marketing professionals has been obscured from the view of investors due to the financial woes of its parent company.
AUGT acquired Hipcricket when AUGT was in its heyday as an IP play, when the "fast money" that flowed to companies like Vringo (VRNG) and VirnetX (VHC) started flowing into AUGT as well. We believe these funds have rapidly been divesting over the last few months as the company announced its intention to move away from the IP litigation model, but we expect to eventually see investors who can see the value in the Hipcricket business stepping into this void. To suggest that investors should take a stake in AUGT at this juncture is admittedly asking them to catch the proverbial "falling knife", but we have looked at this from every possible angle and believe that this stock is grossly oversold and that the capitulation that must occur before the stock can trade back to a valuation that more closely reflects the ownership of one of largest and fastest growing players in the white hot mobile advertising space is at a minimum already in progress and more likely has already occurred. We believe that the introduction of the new CEO (Hipcricket founder Ivan Braiker) and what we hope will be a name change from Augme to Hipcricket will start to bring greater investor recognition of the true value of this company - a very well run mobile marketing/advertising company that appears to be taking market share from its larger rivals and one whose large mobile patent/patent application portfolio covers many aspects of not just Hipcricket's business, but also that of its top competitors.
Investors buying shares of AUGT in the current trading range (it closed at 29 cents last night) are buying the entire enterprise at a valuation that is approximately half the price AUGT paid to acquire Hipcricket back when Hipcricket was less than half its current size, and at a time when the mobile marketing space was still in utero. Hipcricket is indisputably more valuable than it was at that time, its highly regarded management team is taking the reins (starting tomorrow) of the entire AUGT enterprise and investors who are willing to look a little closer at this story have a chance to buy what we think will prove to be one of the biggest winners in the mobile advertising / marketing space at a market cap that is less than 1x the next 12 months revenue. We believe the Hipcricket business may prove to be worth more than $1 per share as a standalone (separate from the patent portfolio). Additionally, due to the rapid deal-making and valuations we are seeing in the mobile space, would not be surprised to see the entire enterprise acquired at a price north of $1.20 per share in the next 12 - 18 months. We believe that Hipcricket will eventually be recognized as one of the best pure plays in the mobile advertising/marketing space and believe that investors would do well to begin establishing positions now while the stock is still trading in a range that reflects the "four letter word" that AUGT came to be for shareholders seeking the IP litigation jackpot.