Editors’ Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.
Twitter's (TWTR) transition from a popular social media platform to a successful public company establishes a compelling roadmap for MEDL Mobile (OTCQB:MEDL) to follow. Not to mention, Facebook's (FB) $3 billion bid for video messaging service Snapchat offers another intriguing data point. Snapchat is probably the closest product on the market to MEDL's flagship app, Hang w/.
I've written before about MEDL - for a more comprehensive look at the company and industry, read this. This time around, we're going to focus specifically on the Hang w/ app and how it will generate revenues moving forward.
Since I last covered MEDL, quite a bit of news has come out regarding Hang w/. Let's start with the news that Hang w/ is now integrated with Twitter. Of course, Twitter has been in the news plenty recently, with its successful IPO. The microblogging giant has over 200 million users and is a premier source of news and info. Twitter is particularly popular with users who follow celebrities and athletes, which is why it's a perfect fit for Hang w/.
For those not familiar with Hang w/, it's a social media app (available on iOS and Android) that allows anyone to broadcast live from their mobile phone to multiple users simultaneously. Basically, the app connects people through live streaming video and chat. It could be to thousands of users or a just a few.
Hang w/ has grown quickly despite the company just beginning to market it. The app has been downloaded more than 600,000 times and has generated more than 10 million user sessions.
With Twitter involved, those numbers have the potential to go parabolic. You see, using Twitter's API, the Hang w/ app can automatically invite a broadcaster's Twitter followers to a live stream. A link is posted to the user's Twitter stream which then takes followers directly to the iTunes Store or Android Marketplace (for those who don't have the app).
By integrating with Twitter, the total reach of the Hang w/ platform has exceeded 900 million and is on pace to pass 1 billion as early as this month. Given those statistics, it makes sense that Hang w/ is attracting the attention of celebrities, particularly those with large Twitter followings.
According the company's most recent press release, more than 80 celebrities and athletes have signed up. The list includes 50 Cent, Timbaland, Kaskade, Paula Abdul, Terrell Owens, Cheech and Chong, Jaime Kennedy, Ali Landry, and several others.
What's more, MEDL recently released Hang w/ 2.0 with the ability to live stream to Facebook. Essentially, the broadcaster can stream live video to their Facebook walls. The videos can then be viewed or shared with friends whether or not they're using a mobile device. Integration with Facebook will certainly boost the visibility of Hang w/ and give the product more widespread appeal.
Now, let's take a closer look at how MEDL can expect to generate revenues from Hang w/.
The key to revenue generation for Hang w/ will be the inclusion of pre-roll and post-roll ads (that is, before and after each broadcast). These ads cannot be skipped, making them potentially very attractive to advertisers.
Before I get to my assumptions, let's start with MEDL's own projections. Back in 2012, the company projected $45 million for in revenue from Hang w/ by the end of 2014. However, that projection must have assumed advertising will have been running for two years starting in early 2013.
It looks as if MEDL decided to polish the app further before "turning on" ads. As such, I think we can realistically expect to start seeing ads in early 2014 now that Hang w/ 2.0 has been successfully launched.
With that in mind, I ran two-year revenue projections through the end of 2015 to see how realistic that $45 million number really is.
- Users: Hang w/ has grown by approximately 100,000 users per month since launch. That puts the January 2014 estimated user count at 800,000. I'll assume the same growth will continue through 2014. In 2015, I'm projecting a 200,000 increase of users per month based on the app's expected growth in popularity. At the end of the two-year period, the user count would be 4.3 million under these assumptions - a very realistic number in my opinion.
- Active Users: The majority of ad revenue will be derived from active users. A similar products, such as Snapchat has over 50% of total users considered as active (according to some projections). Hang w/ will rely more on celebrity broadcasters and other heavily followed users for their revenues, so I'm going to use 2% of total users as my active user count for 2014, and bump it up to 3% for 2015. That assumes 129,000 active users two years from now.
- Broadcast Audience: We need to define 'heavily followed users' by estimating an average audience for their live streams. Top broadcasters have several thousand followers in some cases. Based on my findings from searching through several top broadcasters on the app itself, it's safe to assume an average of 100 users per broadcast. Being an average, I'm including the broadcasts that have 5 users and the ones that have 1,000 or more.
- Number of Broadcasts: Another metric I'm estimating based on searching through highly active users is the number of broadcasts per month. From my research, it appears top users have broadcast hundreds or thousands of times already. Even less active users appear to have broadcast 15 times a month on average. I'm going to project a conservative 12 broadcasts per month (roughly 3 a week).
- CPM (Cost Per Mille): CPM is a common metric used in online advertising. Basically, it's how much advertisers pay per 1,000 impressions. According to the most recent data, 60% of online video ads had a CPM between $8 and $12. A popular site like YouTube is paid a $20 to $25 CPM on ads. For our purposes, I'll use a $10 CPM for Hang w/. Given its closest competitors, I think this is a conservative assumption.
Keep in mind, these metrics could easily change in a hurry as the app becomes more popular. Also, it's important to note that Hang w/ will have pre-roll and post-roll ads, which means each broadcast will include 2 impressions as it relates to CPM.
Plugging all these assumption into my model, I come up with $7.8 million in revenue after year 1 and $35.4 million total at the end of year 2. As such, it's pretty easy to see how MEDL came up with $45 million after two years. After all, MEDL's projections likely include other forms of revenues I'm not taking into account.
For one, while doing these sorts of promotional videos, celebrities typically get paid for wearing name brands. In theory, that type of revenue would have to be shared with Hang w/. (These so-called branded revenues are common in the industry.) Plus, in-app purchases will definitely be available at some point given the addition of "coins" in Hang w/ 2.0. (The press release states the "coins" are for the eventual purchase of digital content.)
While I'm making educated guesses for most of my variables, I don't believe any of my assumptions are out of line. In fact, I'd say they're all fairly conservative based on industry standards.
While I'm clearly bullish on MEDL, the investment is not without risks. As I've stated before, the company's success hinges on the widespread growth of Hang w/ and the ability for the app to generate revenues.
Keep in mind, Hang w/ will produce revenues based on advertisements shown before and after a broadcast. Nevertheless, those advertisements have yet to be integrated into the platform. We don't have any notion of what types of ads will be placed, what kind of click rate the ads will receive, etc.
In other words, there are a lot of questions to be answered - and there's a long way to go for the company to reach $45 million by the end of 2015.
So far, the Hang w/ user base is growing at the accelerated rate you'd like to see as an investor. The next step is seeing how that translates into actual revenues.
Integration with Twitter and Facebook, and the robust buyout offer for Snapchat provide MEDL investors a reason to be optimistic about Hang w/. The app is generating the necessary buzz. Now, it's management's job to integrate ads and start generating revenues.
Given my own projections, the company's $45 million revenue forecast in two years seems within reach. Finally, given MEDL's extremely low market valuation (under $12 million at the time of this writing), the shares clearly have explosive upside potential given the revenue projections.