As investors are finishing up their Christmas wish lists and looking towards the upcoming year, many are hoping to find the next big investment—the one that is going to be the stock of 2012—hanging in their stockings Christmas morning. One company may fit the profile and be the perfect candidate to breakout in 2012.
On December 5th, shares of Elephant Talk (ETAK) began trading on the AMEX. This, in addition to recent developments, has poised the company to have a stellar new year.
“The move to the AMEX brings Elephant Talk to the next level,” Elephant Talk CEO Steven Van der Velden points out in an interview with me. “It will provide a better reflection of the true value of the company.”
The uplisting represented a major shift for Elephant Talk and has removed the risk in investing in an over-the-counter bulletin board stock. Elephant Talk has proven it has a viable business model. The move to a senior exchange also provides credibility for the many organizations and institutions that Elephant Talk is engaged with.
Moving to the AMEX also comes with certain requirements and standards. Elephant Talk bolstered its cash position significantly during the second half of 2011. According to the latest data, the company has over $10 million in cash. Furthermore, current contracts alone will cut the cash burn rate in half. Positive EBITDA should occur sometime in 2012 based on signed agreements. This is one factor that enabled the company to qualify on a senior exchange and is a sign of reduced risk for investors.
Van der Velden also noted that the company had successfully migrated a very large number of SIM cards to its MVNE platform for Vodafone (VOD) in Spain.
Explained Van der Velden in the December 8th conference call:
It actually is—to the best of our knowledge—the largest-ever migration worldwide without a so-called SIMs swap. In fact, we believe we are the only managed services company in the world that has ever managed such a large process successfully.
This feat is crucial going forward because it validates Elephant Talk’s unique ability to migrate users to its MVNE platform very effectively. The development provides the credibility to perform large migrations in the future and positions the company to secure similar contracts going forward. Elephant Talk is now managing a total of nearly one million SIM cards going forward. But the company hopes to add even more in the coming year.
“We have some very serious discussions in the pipeline,” noted Van der Velden in our discussion. “We would be very disappointed if we couldn’t turn those into hard contracts.” In fact, the company is projecting to expand their MVNE services from four markets to eight in 2012, including the first North American contract expected later this month.
Elephant Talk also has another side to its business called ValidSoft, which provides telecommunications-based authentication solutions.
Security was a hot topic in the investment world in 2011 and will continue to be critical in the future. The company’s technology and solutions have already caught the eye of some global powerhouses. “Execution is what 2012 is all about,” Pat Carroll, CEO of ValidSoft points out in our interview. “The company is positioned well with the agreements we have established.”
During the course of 2011, ValidSoft successfully conducted trials with many leading global banks and payment processors, who themselves processes billions of transactions a year. Carroll fully expects to see such relationships extend into revenue bearing contracts in 2012 which could seriously ramp up revenues very quickly.
ValidSoft has also been running live trials with a European government agency to provide welfare recipient self-certification. In the December conference call, the company stated the project will soon move into its next stage and “…has already opened the door to a number of other significant opportunities in 2012 with other European countries.”
In what may prove to be its most exciting development, the company recently signed an agreement with Adeptra, a global leader in their respective services provided to financial institutions. In fact, Adeptra and Validsoft have already completed technical integration. Their solutions have already piqued the interest of a top 5 global financial institution. A signed contracted is expected in the coming quarter, with production following soon after.
Lastly, many see the mobile wallet beginning to take a hold in the near future. “ValidSoft fully expects a part as a major player in mobile payments,” said Carroll. The company provides solutions to prevent fraud while maintaining user privacy, an often missing piece the mobile wallet puzzle.
The leap of ETAK shares onto the AMEX has set the tone for the company in 2012 and validates the increasingly strong fundamentals. Much of the uncertainty about the company has now been removed. Elephant Talk previously had a high cash burn rate and there were questions about the need for funding in the future. Now the company has a solid cash position with enough existing contacts to get the cash burn rate under control going forward. Furthermore, global leaders have begun taking notice of the company’s cutting edge solutions, which alleviates the risk involved in introducing and having new technology accepted in the marketplace.
While the company’s fundamentals have strengthened, Elephant Talk and ValidSoft have also laid the foundation to expand and monetize on a significant number of relationships in the near future. The rewards could be great. Discussions with these major players, especially with financial intuitions processing billions of transactions, could lead to an explosion in revenue. Financial fraud costs the industry almost $100 billion a year. Elephant Talk has a real solution to this problem and could experience rapid growth in this massive potential market of fraud prevention.
As investors search for the gift that keeps on giving, they should consider wrapping a present of Elephant Talk for themselves. The company improved its fundamentals in 2011 and positioned itself well to monetize relationships with industry leaders going forward. With the company beginning to make serious inroads in multibillion dollar markets, it could turn out to be a merry Christmas for Elephant Talk investors—and make for a very happy New Year.
Disclosure: I am long ETAK.