Every investor is looking for the next small cap investment with the possibility of becoming its next exponential gainer. Mitek Systems (NASDAQ:MITK), specializing in mobile bill pay, has been overlooked for far too long as the future of mobile banking.
Mitek Systems Innovation
MITK continues to innovate in the realm of online bill pay. Its claim to fame is an online bill pay application that allows customers to deposit checks, make insurance claims, and pay bills instantly by simply taking a picture of its checks or insurance claims. MITK has a patent portfolio containing thirteen patents that specialize in mobile imaging software. These patents allow both cell phones and tablets to pay bills virtually anywhere without the hassle of a trip to the bank or its insurance office.
Progress of Convenient Banking
The first innovation of mobile banking came in 1999 when SMS banking through a text message system became popular for European banks. In 2010 Apple (AAPL) developed an application for banking over online mobile web servers which led to an even greater increase in mobile banking. Most recently, Bank of America (BAC) developed a patent in 2012, allowing check deposit through ATM's granting bank customers greater convenience in check depositing. These innovations however were the only first steps of innovation to compete for the most convenient banking method. The growth of smartphone users from 2011 to 2012 has grown from 31% to 44% of the current U.S. population and appears to be the future marketplace of various industries.
The Future of Mobile Banking
With 32 million people in the U.S. currently using mobile banking software, and 96 million users predicted to be banking on mobile devices by 2016, it is easy to see where the future of banking innovation will be. Outside of the U.S. there is also a potential market of 600 million current mobile banking users looking for a way to avoid standard banking as well. With MITK's quick action in securing mobile imaging patents over the last four years, there is little question as to where banks will be forced to turn to for an advantage against competition in this growing mobile market. Expected to launch its mobile imaging applications with 708 banks including 10 major U.S. banks early this year, MITK predicts that it will see a large increase in revenue starting with its next quarterly report in May.
Mitek Solutions First Quarter 2013 Financials
MITK filed its quarterly report on February 6, 2013 and had several key figures that indicate growing usage and profitability of its company. Revenue was $3.3 million and "record bookings for mobile bill pay" with a large amount of its revenue recurring in the future. Even though it accrued a 5 cent loss per share compared to a break even first quarter in 2012, the loss was reported as heavily due to "higher investments in personnel to grow the business, sales and marketing expenses and R&D associated with product development".
The operating cost in the future should decrease because the company's current expansion to meet the growing demand for its software is only the result of its huge increase in bank partnerships. Currently with over $15 million in cash, the company is safe to continue operations as planned and currently has a market cap of $112 million. Also announced this quarter, MITK filed 14 new patents pending USPTO approval, which upon approval, will double its current patent portfolio in mobile imaging software.
Current business with Fortune 500 companies and numerous smaller banks as well as a strong patent portfolio paired with the recurring revenue stream that is set to begin early this year, will allow Mitek Solutions to dominate the future of mobile bill pay for years to come. As soon as revenue begins to stream in from current partnerships and operating costs begin to decline, MITK will be poised for profitability, larger institution attention and numerous stock upgrades. MITK was previously viewed as a developmental stage company, but with these new developments should no longer be considered as such.
Key partnerships made with U.S. Bank on December 5, 2012, and also with three of the top five insurance companies, has led to a steady uptrend in MITK PPS with over a 100% increase in PPS since its U.S. Bank partnership announcement.
A short ratio of 24% shows that MITK is poised for an even greater breakout pending news of future patent approval, analyst upgrades, or further bank partnerships that could occur any day. I have MITK listed as a strong buy with a $7 price target by second quarter earnings set to be reported in early May and a $15 target for the year as earnings are set to show large revenue growth.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MITK over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.