With the expansion of the mobile market, we felt an update to last year's pick Mitek Systems (NASDAQ:MITK) was necessary. MITK, specializing in mobile bill pay, has been showing promising signs of growth over previous months. MITK gapped down in early 2012 under a patent lawsuit and speculation that they have since climbed out from under. Mitek announced on the 7th that US Bank has since launched its Mobile Deposit Software with 449 financial institutions and have 445 additional contracts with institutions yet to implement its technology. With 445 more institutions implementing this technology in 2013 including US Bank, one of the 5 largest U.S. banks, we expect future earnings releases to begin beating market expectations allowing for high returns on investments.
Mitek Solutions Second Quarter Financial Report
According to MITK's 10K filed on May 7th 2013, Mobile Deposit technology has deposited over $40 billion in check deposits. As for its quarterly results, MITK showed promise in key financial aspects. Revenue was $3.2 million, up over 170% from a year ago. Its mobile deposit transactions increased 25% quarter over quarter as well. Increased deposit transactions was largely due to more of the financial institutions contracted to use its software beginning to use its products. Mitek announced that they have $15.3 million in cash and no debt, which represents over 10% of its market cap, and ensures its ability to continue operations for years to come.
The second quarter of 2013 came with many new announcements reiterated in MITK's conference call May 7th. 5 more banks signed agreements to use Mobile Photo Bill Pay, MITK's 14th patent (on Mobile Photo Bill Pay) was approved, another top 5 insurance company signed a contract for MITK's mobile imaging technology, and MITK received the Monarch Award from Barlow Research Associates for being the "Industry's Overall Most Innovative Company".
Finally, MITK is now providing mobile deposit software to 35 of the top 50 U.S. retail banks and 889 financial institutions total. 445 of these institutions have not yet fully implemented Mobile Bill Pay, which means that future revenues will continue to show quarter over quarter increases as more institutions begin implementing MITK's contracted technology.
MITK announced expansion into new markets with its May 7th earnings report.
Wal-Mart (NYSE:WMT) is now teaming up with MITK to use Mobile Deposit technology for a Wal-Mart Bluebird prepaid card. MITK believes that Americans will load $202 billion on prepaid cards this year, a huge increase from $29 billion in 2009 and this partnership should facilitate large revenue growth going forward in a quickly growing industry.
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. Its mobile insurance claim software is by far the best in the market and it has already signed 3 of the top 5 insurance companies to use it. Its mobile banking applications are becoming more and more widespread, establishing itself as the premier choice for mobile imaging software.
MITK has a patent portfolio containing fourteen patents that specialize in mobile imaging software, both protecting them from future patent lawsuit attempts, and (as it expressed in its conference call) gives MITK the ability to pursue its own patent lawsuits against major banks and companies infringing on its technology. These patents focus on allowing both cell phones and tablets to pay bills virtually anywhere without the hassle of a trip to the bank or 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 (NASDAQ: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 (NYSE:BAC) developed a patent in 2012, allowing check deposit through ATMs 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 hassle. The banks that use MITK's software save as much as $3.88 per transaction or 95% of check-deposit costs. Altogether, MITK has saved its bank clients more than $100 million.
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. MITK is expected to launch its mobile imaging applications with 708 banks including 10 major U.S. banks this year and now have 889 Mobile Deposit Customers under contract.
Technical Breakdown by Harry Boxer
The following technical analysis of the company's shares is by the renowned technical analyst Harry Boxer, who has published The Tech Trader for 13 years and has more than 45 years of technical analysis experience.
Technically MITK has had a strong recovery from a wide double bottom near $2. Since November's low it had nearly tripled in the last 6 months to tag 5.76 last week before backing off post earnings release. The current pullback is retesting the 50 day moving avg and a major up-trendline and appears to represent a buying opportunity. Targets going forward are 5.75, 6.50 & 7.50 over the next few weeks.
--Harry Boxer, TheTechTrader.com
MITK's current business with Fortune 500 companies and 889 total financial institutions makes it the leader in mobile bill pay. Half of its 889 contracts have yet to begun, which means that revenue will only go up from here. Its 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.
Key partnerships like its contract with U.S. Bank on December 5, 2012, its recent announcement of a contract with Wal-Mart, and also with three of the top five insurance companies, has led to a steady uptrend in MITK PPS. Its PPS has increased 100% since its U.S. Bank partnership announcement alone! US Bank only began using MITK's Mobile Bill Pay technology as of May 7th, so we expect US Bank as well as other factors mentioned to have a very positive effect on its third quarter earnings. Currently with a market cap of $137 million, we believe MITK to be grossly undervalued at these levels.
Disclosure: I am long MITK. 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.
Business relationship disclosure: The Focused Stock Trader(Powered by Contextuall.com) is a team of investment researchers focusing on the production of TheFocusedStockTrader.com newsletter which is currently under construction. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.