Back in March, I highlighted a small stock called NTN Buzztime Inc. (NYSEMKT:NTN). The company is a bar entertainment company best known for its handheld poker and trivia playing devices found in sports bars like Buffalo Wild Wings (NASDAQ:BWLD). Since that article, shares have fallen 31% despite increased revenue and rapid expansion of the BEOND technology. Investors are underestimating the potential of the BEOND concept, particularly the Buffalo Wild Wings national rollout and the possibility of POS and tableside ordering.
On the recent earnings call, NTN highlighted its new four step approach to maximizing shareholder value and longevity:
· Converting Buffalo Wild Wings location from classic platform to BEOND
· Rolling BEOND out to broader marketplace
· Piloting point of sale integration with Buffalo Wild Wings
· Realigning organization to fulfill its objective of entertaining customers
At the end of the second quarter, NTN announced it had completed the BEOND transformation in 419 Buffalo Wild Wings locations. There were over 1000 Buffalo Wild Wings locations at the time of writing, putting NTN at less than half way on its first goal. The company has BEOND at a total of 676 restaurants across the country.
The key here for investors is number three, as NTN has partnered with NCR (NYSE:NCR) and is currently testing POS functionality at five Buffalo Wild Wings locations. There is anticipation to roll out the technology to other locations. A full launch of this would greatly improve the NTN concept and increase the overall revenue per restaurant generated by NTN Buzztime.
Answered during the question and answer segment, NTN plans on having table pay options available by the first quarter of 2015. This would be a huge plus for both NTN and Buffalo Wild Wings. This is an update that will be a key going forward for the company on future earnings call and press releases.
Another update from the call was NTN's new conversion process to a multi-channel game development called unity. The first unity game will be launched in the fourth quarter. Video games on the tablets remains a strong market for NTN. The overall market for video games was 200,000 locations last year, generating $750 million in sales according to Vending Times.
One of the first unity platform games will be OpinioNation, a live polling game. Players across the nation will attempt to guess the most popular answers conducted from national surveys. The Family Feud style game will be another traffic driving game for NTN and its restaurants.
A June executive team signing could also boost the gaming portfolio for NTN and the BEOND platform. The company hired Robert Burnett, a former executive from Electronic Arts and Zynga, to its executive team. Burnett was involved on hits like Farmville and Madden Football. He will likely have a huge say in how the games on BEOND plays out.
Regarding POS and video game updates, the company said this, "Make no mistake; consumer revenue from premium entertainment is a big opportunity for us, and features heavily into our business model." The premium upgrades also lower the overall cost of ownership for merchants, as generated revenue is then shared between the restaurant and NTN.
I mentioned back in March that NTN was adding 150,000 Buzztime subscribers a month and had a total of 4 million registered players. On July 16th, NTN announced it had reached the five million player registration mark. This was fast growth from the 4 to 5 million mark thanks to the continued rollout of BEOND at Buffalo Wild Wings and other restaurants.
At the end of the third quarter, 150 Buffalo Wild Wings had BEOND installed. At that time, NTN expected 500 restaurants to have BEOND by the end of 2014. There are 1025 Buffalo Wild Wings locations, with plans for 1700 locations in North America.
Buffalo Wild Wings tested the BEOND platform for some time before launching company wide. During testing, the restaurant saw a 500% increase in game play and also improved average revenue per customer as patrons stayed longer and ate and drank more. NTN benefited with a 700% increase in registered Buzztime players at locations with BEOND.
Along with Buffalo Wild Wings, NTN is starting to announce other BEOND deals with several restaurants. The company added Aroogas, a new franchise concept based out of Pennsylvania. BEOND will be put into 9 current locations and will be a part of all future company owned and franchised locations.
NTN announced it is piloting the BEOND platform at a number of chains, but will only report when it secures chainwide wins. NTN Buzztime remains committed to their long-term goal of BEOND in 10,000 locations.
The company had 3103 venues under subscription between the classic and BEOND platforms. This is down from 3352 a year ago. The overall number of subscribers continues to fall, but the overall quality revenue increases with the higher performing BEOND platform. The company expects the overall number to go up starting next year.
NTN recently held a public offering to raise money. The underwriters (Roth Capital) also exercised their full option to purchase shares. Roth purchased 1.67 million shares at $0.55. In total, $12.8 million in shares were sold from the offering. NTN will see gross proceeds of $7.0 million and net somewhere around $6.4 million from the offering.
The second quarter wasn't a huge one for NTN from a financial perspective. The company is slightly behind on its BEOND transformation. NTN also saw a $639,000 charge to switch to the unity video game platform. The company says it will continue to see operating losses this year.
Second quarter revenue increased 24% to $6.9 million. Direct costs rose to $2.8 million, up from $1.5 million in the prior year. The company reported a net loss of $0.01 per share. NTN ended the second quarter with $11.2 million in cash.
There are obvious risks with investing in NTN Buzztime. For starters, the company has a market capitalization of less than $100 million. Shares are also considered penny stock, as the highest price shares have seen in the last year is $0.99.
There are also rivals in many of the areas NTN competes. The tablet in restaurant market is becoming crowded. E la carte, a key rival, has signed up many rivals including Chili's to national rollouts and has tablets on every single table.
Another key risk is NTN's reliance on Buffalo Wild Wings. Despite its presence in more than 3,000 restaurants with Buzztime, Buffalo Wild Wings is the key to the BEOND transformation. Buffalo Wild Wings is the first chain to take BEOND national and could be the make or break point for NTN. A successful rollout and strong numbers to backup NTN could increase the company's profile and lead to other chains signing up. A slow rollout or poor numbers by Buffalo Wild Wings could spell doom for NTN. If Buffalo Wild Wings doesn't launch the tableside ordering or POS through NTN it could also send shares further down.
As I wrote in my initial NTN article, the tablet opportunity for restaurants is huge and likely here to stay. Customers live in a technology world and restaurants have to adapt to these changes. This means a company like NTN can provide a benefit by offering entertainment, menu ordering, bill payment, and other options directly at the table.
NTN has a large opportunity with Buffalo Wild Wings and that could lead to future wins. Even with just Buffalo Wild Wings, NTN has an opportunity to increase the average revenue per user by adding POS options and splitting gaming and transaction revenue with the restaurants.
NTN shares remain in my portfolio and I await the completion of the Buffalo Wild Wings upgrade and other pilot restaurants. I remain committed to seeing the POS and tableside options offer huge upside for this company.
Disclosure: The author is long NTN.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.