(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
In my last article about Adaptive Media (MIMV), I covered some of the steps the new CEO has taken to turn this company into a profitable venture. They are set to release earnings next Tuesday and this should be the first inkling of how much he has actually achieved.
So far he, Qayed Shareef CEO, has talked a good game and inspired us with confidence: it is now time to take a look at the score, or in this case the balance sheet.
Before we do that however, I would like to take a second to look at the CEO's track record.
"Mr. Qayed Shareef is the Founder and Chief Executive Officer of Adaptive Media. Mr. Shareef has been the Chief Executive Officer of Mimvi, Inc. since July 1, 2013. He has been an Advisor at Media Forum Inc. (Formerly mediaFORGE) since April 2012. He served as a Senior Vice President of Business Development at Epic Marketplace, Inc. He served as the Head of Corporate Development and Strategic Initiatives at Epic Advertising, Inc. He served as Vice President of Display Network and General Manager at Epic Marketplace, Inc. He oversaw publisher development, campaign management and ad operations. He has 15 years of marketing, sales and operations experience. Prior to Epic, he served as an Executive Vice President and General Manager for the Traffic Marketplace Ad Network (NYSEMKT:TMP), where he gained valuable expertise in campaign management, yield management and publisher/business development for display, mobile, and video media. He helped launch Traffic Marketplace's first mobile network in 2008. Prior to Traffic Marketplace, he Co-Founded and served as the Chief Operating Officer and Head of Marketing of Premier Group Services, which he Co-Founded in 2004. He quickly recruited, hired and managed a sales force of 150 licensed agents and made PGR&L a recognized leader in its space through online marketing efforts in search and email. He has also served in advisory roles for several start-ups that have been acquired, including Tapit! (Phunware). He served in management roles at Drapers.com, Cheetahmail and Lowermybills.com and Virtual Iris, contributing to the growth and success of these companies in their early stages. He has been a Director of Mimvi, Inc. since July 1, 2013. He sits on the Advisory Boards of Ember, Pagewoo, and Facecake Marketing Technologies."
Needless to say he has been pretty busy, with most of his ventures reaching a successful outcome. He seems to know what he is doing in the realm of online advertising & marketing, and has been a driving force at the development stage of these companies. At face value he appears to be the right guy, at the right time, to take over the Mimvi/ Adaptive merger. He also seems to think so as this was one of the conditions built into the merger. I will also note here that he sits on the advisory board at Ember. I will cover the relevance of Ember later on, but for now we should look at what Adaptive does.
About Adaptive Media
"Adaptive Media is a programmatic audience and content monetization company for website owners, app developers and video publishers who want to more effectively optimize content through advertising. The company provides a foundation for publishers and developers looking to engage brand advertisers through a multi-channel approach that delivers integrated, engaging and impactful ads across multiple devices. Adaptive Media meets the needs of its publishers with an emphasis on maintaining user experience, while delivering timely and relevant ads through its multi-screen, multi-channel ad delivery and content platform."
In English I think that means that they help companies put ads on their sites, without interfering with customer experience. In addition they make sure that the ads are place so as to attract brands that want to be there. They are capable of providing this service across all platforms which will be key to their success. Facebook (NASDAQ:FB) spent a lot of time and money trying to monetize mobile. A majority of companies do not have the time, money or technological resources that Facebook does. They are busy enough producing whatever widget they make or providing their chosen service. It is these companies that the new Adaptive Media will target.
About MIMVI the old one!
"Mimvi, Inc., formerly Fashion Net, Inc. is a development-stage Company. The Company is a technology company that develops advanced mobile apps, algorithms and technology for personalized search, recommendation and discovery services for the mobile application and social networking industry. Its personalization technology automates the organization of content connected to mobile applications and social networking applications. The Company has developed cognitive computing technology, which is the basis for its personalized search and recommendation platform. Mobile applications are the new Websites and mobile devices are the new browsers. In April 2013, Mimvi Inc acquired FanAppic. In May 2013, Mimvi Inc acquired AndroidRays. Effective July 2, 2013, Mimvi Inc acquired Adaptive Media Inc."
Note this is what MIMVI's site used to say. The About Us section is now identical to the Adaptive Media statement above and links to that site. The way Mimvi handles search will be central to Adaptive's success. Put simply, it's a bit like AI (artificial intelligence) for an app. The apps learn from you based on your preferences while using other apps, surfing the web etc. This means that when you search for something you only get the stuff you are actually looking for. This really helps Adaptive with the, "engage brand advertisers through a multi-channel approach that delivers integrated, engaging and impactful ads across multiple devices." portion of their statement.
The big money in mobile advertising comes from video. The big brands will pay big money, to whoever can best place those videos. That helps with the "monetization" portion of Adaptive's statement, which is reinforced by the intent to acquire Ember.
At the end of September Adaptive announced in a press release that it intended to acquire Ember. In that release Ember was described as follows;
"Founded in 2012, Ember is a Demand-Side Platform (DSP) that leverages machine learning algorithms and contextual and semantic engines to bring more transparency to online video advertising placements. Ember's founding team of Nic Borensztein, Damian Ancukiewicz and Vikaas Sharma, betting on the trend of advertising budgets shifting from television to online video, built a transparent, real-time bidding (RTB) platform which ensures brand safety as well as stronger return on investment (ROI). Ember makes money by taking a percentage of all transactions that flow through its system."
I like to think of it as the CME of advertising. A free market, where ad space will compete for a share of the huge budgets these major brands have. The brands themselves benefiting from enhanced placement, increased efficiency and good old fashioned competition.
At What Cost?
So far we have highlighted some of the most important steps of the last four months. I have by no means covered everything that this company has achieved. There is a lot more and I suggest you read all of the press releases and filings yourself. With all of this activity there has to be related expense, so let's break it down.
- According to Q2 financials the Adaptive / Mimvi acquisition cost approximately $3.25 million or about (0.03) per share. The full costs were accounted for during Q2
- Synergy savings to the company are estimated to be $100K per month, $1.2 million annually. Approximately 0.008 per share on a quarterly basis. We should start to see the benefit of this on Tuesday.
- Adaptive also has real revenues." Adaptive Media generated revenue of $757K from May 2012 through June 2013. Revenue during the 2012 period was $143K, climbing to $613K during 1H 2013. (PR)"
- And Ember, "IRVINE, CA, September 24, 2013 - (Accesswire) - Multi-channel audience and content monetization company Adaptive Media, a subsidiary of Mimvi, Inc., today announced it has signed a Letter of Intent to acquire Ember, Inc. A Definitive Agreement in the all-stock transaction is expected to be signed in the fourth quarter of this year." We have yet to learn the cost in terms of dilution.
According to Q2 audited financials, Mimvi/ Adaptive reported a net loss of (0.04) per share on revenue of 27K. Excluding costs associated with the acquisition (0.03) they would have reported (0.01) per share. If we then add in the savings from synergies 0.008 we end up around (0.002) per share as a rough estimate for Q3, or least a point to use as a baseline.
Earlier this week Qayed Shareef announced "Without getting into specifics, our top-line revenues were nearly 14x the $27k reported in the 2nd Quarter. It's important to me that we release these financial results under our new company name, Adaptive Medias, Inc. Now, we are simply waiting on FINRA to green-light the updates."
So if revenues are 14 x Q2 at $380K and expenses increased 14 X we could expect EPS of (0.03).
I would contend that much of the expense is made up of fixed costs and so will therefore not increase. The company has signed other agreements during the last quarter that will incur additional cost.
I feel confident in projecting EPS (0.01) on revenues of $380K for Q3 and expect things to continue improving through Q4.
As the CEO said "We look forward to releasing our results next week. Investors should be very pleased with the progress we've made over the past four-and-a-half months."
Since the arrival of the new CEO four months ago, the stock has seen a modest reversal in fortunes. It has ended a long term down trend and now appears to have established a rising channel. I anticipate a bullish 50/200 cross in the near future.
N.B. Confusion over name change and ticker change may adversely affect price action surrounding upcoming earnings.
Ideally a break above 0.14 allows for a move on 0.21. A break above .21 leads to horizontal resistance around 0.28, above the current channel supporting further gains.
On the down side, selling should be limited to the LT double bottom established in July. It is also important to note that the CEO is the largest shareholder after taking a 24.4% position since he took over.
This is after all a micro cap stock, and any investment at this point should be considered as a total loss. To be clear, do not invest anything you are not willing to lose entirely. Adaptive Media presents some real opportunity but I urge caution. Facebook, Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and many others are all competing in this space. I do not see any chance that they will end up as customers of Adaptive, but Adaptive Medias approach is unique within the industry.
If the company is successful with the smaller companies, I could see anyone of those three looking to acquire them as a handy addition to their business services division.
Without a buyout Adaptive should continue to grow at a good pace within the industry.
"According to market research firm eMarketer, the online video advertising market will exceed $4 billion in 2013, and is expected to more than double, to $9 billion, by 2017. eMarketer expects worldwide digital advertising to exceed $118 Billion dollars this year, and grow to $163 Billion by 2016."
Adaptive should continue to grow a share of that market. For that reason I am willing to risk a small $ loss, weighed against a large % return.
I am long MIMV from 0.07 and have a 12 month price target of $1.20