Global distributor of digital entertainment, FAB Universal Corp (NYSE: FU), recently announced that it has increased its Intelligent Media kiosk business by 2,311 kiosks in the second quarter of this year; compared to the 1,728 kiosks in the first quarter. On a quarter-on-quarter growth, this translates to an increase of 33.7% and 81% on a year-on-year basis. FAB Universal generates revenues from these intelligent media kiosks via continuing media content downloads, media membership cards, and kiosk based advertising. Customers can purchase and download copyrighted music, video games, and movies directly to their mobile phones.
The growth of these kiosks has been tremendous over the last few years. Its network has grown to reach over 40 cities in China such as Beijing, Shenzhen, Chengdu and Guangzhou with an installed base reaching 16,000. This resulted in the company selling 162,869 new membership cards in the second quarter, representing an increase of 89% on a year-on-year basis. On top of that, FAB Universal has also entered into a five year advertising agreement with Shanghai Qiujia Culture Media to provide advertising on the top screen of the FAB Intelligent Media Kiosk Network. The non-exclusive agreement is expected to yield $1.6 million for the company.
These positive developments are complemented by the company's expansion plan. The company has sealed the deal with Time Antaeus Cinema and Shouhang Supermarkets to open multiple FAB branded media and entertainment retail mini-stores. Based on their agreement, the partners will provide space for the company to operate their branded digital media stores and intelligent kiosks. The first 35 locations are expected to be completed this year in key cities such as Beijing, Chengdu, and Guangzhou.
There are no analysts covering the stock. Noting that its average daily volume is at 67,890 and market cap of $76.89 million, institutional investors do not have interest in the stock. This is where small investors profit from investing in FAB Universal as a lot of information has not been discounted into the stock price. Over the last five years, sales have grown by an average of 40% a year. While the company is still in the red, it expects earnings per share of $0.60 this year. At the current price, this translates to an earnings multiple of six times and at only 57% of its book value.
Digital media technology companies are trading at least 10 times earnings. For instance, communications solutions provider BCE Inc. (NYSE: BCE) is trading at 13 times earnings and consumer electronics giant Apple Inc. (NASDAQ: AAPL) is valued at 10 times earnings. If we assume that it would trade in line with its peers, FAB Universal would be valued at $6 per share. This implies an upside of 62% from current price levels. Given its current growth from intelligent media kiosks, it would come as no surprise that the gap between price and value will close over the long run.