AudioEye Inc. (OTCQB:AEYE) is trading below $1 per share, and with the adoption of the Communication and Video Accessibility Act (CVAA) in 2014, the company already is greatly benefiting -- Q1 revenues rocketed 360 percent from the previous year's Q1.
From the July 2, 2014 pre-announcement: "The Company is on pace to exceed our previous revenue guidance of $8 million for the full year, and we believe AudioEye is in the early stages of the large-scale adoption of our technologies by federal, state and local governments in the U.S. and abroad."
AEYE reaching $8 million in revenue would huge because the company produced only $1.45 million in 2013 and $270,000 in 2012. With AEYE expecting to report another record-breaking quarter in Q2, we believe now is a great time to buy the stock. 3D Analytics has completed a thorough review of AEYE, and with revenues likely to increase at 100-plus percent annually over the next few years and the company's current patent portfolio worth considerably more than its present market cap, we determined the stock is grossly undervalued. Consequently, we assign a buy rating with a $5 price target.
AEYE should greatly benefit from current legislation changes, which require websites to either adopt solutions for people with disabilities or potentially face damaging litigation
AudioEye is the only cloud-based Software as a Service (SaaS) Web Accessibility platform that provides disabled individuals a free, innovative and groundbreaking software utility that enhances their web-browsing experience at the same time that it also helps bring publisher sites into ADA, Section-504, Section-508 and CVAA compliance.
As AudioEye CEO Nate Bradley said in his May 2014 Interview on FedConnects.com, "The 21st Century Communications and Video Accessibility Act was signed into law on Oct. 10, 2010, and it focuses on updating the nation's telecommunications protections for people with disabilities. The Act was signed into law right before sequestration and other cuts went into effect. We are seeing more enforcement of this law and are being rewarded by the increased demand from federal agencies' need to be compliant."
While helping thousands of government websites achieve 508 compliance, AudioEye also is providing a solution for public corporate websites that face litigation for non-compliance.
In a research profile on AEYE, RJ Falkner and Company, an investment research and financial communications firm, stated, "Companies such as Target, H&R Block, CNN, eBay, Netflix and Disney have been sued because their websites, mobile content or televised programming was not fully accessible to persons with visual or hearing disabilities. We expect such litigation to proliferate greatly in coming years, as the U.S. Department of Justice, other federal agencies and plaintiffs' lawyers identify non-compliant websites and pursue administrative remedies or file lawsuits against violators of the CVAA."
With increasing enforcement of accessibility laws and proliferation of lawsuits protecting the disabled, AudioEye's technology puts it in a unique position to prosper, and the company's Intellectual property potentially shuts out its competition.
In 2010, only two of AEYE six patents were valued significantly higher than its current market cap; with legislation changes leading to more-prevalent litigation, these patents potentially could be worth much more
These patents are critical in understanding the ease of use of AudioEye's solutions. The patents cover the ability not only to effectively navigate and use simple internet pages on a desktop computer, but also to gain access through tablets, mobile phones and any other device that is attached to the network. The integration is seamless and can be used at one's home, school or place of employment. In a report from 2010, The Kernich Group LLC, a national business and litigation consulting firm, assigned a fair-market value of between "$131 million and $182 million" for only two of these patents. Four additional patents have been issued to AEYE since the release of that report, and three more are in the process of being issued. AEYE also stated in its most recent 10-K that coverage of all patents has been extended through 2026.
Bradley, AEYE CEO, told us he feels the current valuation of the company's patents is considerably higher as a result of laws having strengthened, the market having grown and applications having increased.
Revenues grew by 360 percent in Q1 and are expected to grow by 1,400 percent in Q2, which would make it the company's first profitable quarter
On May 15, 2014, AEYE reported record Q1 revenues of $1,032,886, an increase of 360 percent compared to the previous year's Q1.
Bradley said in that report, "By addressing the challenges of meeting federal-accessibility mandates for our government, institutional, educational, healthcare and commercial customers with our patented Audio Internet technology platform, we expect quarterly revenues to accelerate during the balance of the year. Our annualized revenue 'run rate' in the first quarter exceeded $4 million, and we believe AudioEye has the potential to achieve an annualized revenue 'run rate' of $8 million or higher within the next two quarters."
On July 2, 2014, AEYE pre-announced another record quarter and expects to report approximately $3 million in revenues for Q2 - almost a 200-percent increase from the Q1-revenue blowout. AEYE also expects to be profitable for Q2.
Revenues for 2014 are expected to exceed $8 million, which in the near future is likely to place AEYE among the top growth companies in 2014 and likely to deliver dramatic gains in EPS as it operates a high margin software business.
AEYE expects revenues for 2014 to exceed the company's previous guidance of $8 million. We believe this exponential revenue growth is a direct result of the current legislation changes. AEYE offers the products needed for both governments and companies to meet the internet-accessibility needs of various disabled users. As shown in the revenue figures below, AEYE should be among the top growing companies in 2014 and likely to deliver dramatic gains in EPS as it operates a high margin software business.
Risks associated with AEYE
AEYE is traded on the OTCQB exchange, where at times, liquidity and information are sparse. In the past, AEYE needed to obtain capital financing in order to sustain operations. Although cash flow from operations should greatly increase along with revenues because AEYE operates in a high-margin business, the company's total outstanding shares also might increase.
With revenues growing exponentially and Q2 and Fiscal 2014 results expected to be even stronger, we feel this undiscovered stock will grab investors' attention. The recent legislation changes are the main driver of AEYE earnings growth, as government and consumer websites need to adopt a solution or potentially face expensive litigation. Consequently, we assign a buy rating with a $5 price target.
Disclosure: The author is long AEYE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
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