Monetization attempt of up to 75 million users may result in near-term explosion in revenue for a revitalized Keek. One-year price target of $1 per share.
Watch the YouTube video introducing Peeks here
Download the app off of peeks.com
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Keek (KEK.V, KEEKF) is a stock I have been bullish on before during my chase for the next big social media play a couple of years ago. Since it was listed on the TSX Venture in early 2014 it has been an absolute disaster for long-term investors and I was lucky to get out without any losses. After a quick spike to 30 cents, the stock eroded in price as missteps and overspending by management left the company in dire need of cash with very little to show for by the end of 2015. KEK is now around 20 cents after a 1-for-30 reverse split which means it has lost 97% since its first day of trading in January 2014. The company might have become insolvent if it weren't for the strategic investment made by Riavera Corp, (and its subsidiary Personas.com), the holding company owned by experienced payments processing entrepreneur Mark Itwaru.
Lots of investors, both in the public and private markets, have a right to be upset or wary of the company. However, the new regime led by Mr. Itwaru promises immediate monetization and revenue for Keek through a newly released livestreaming and social commerce platform called Peeks. I have spoken extensively with Mark and members of his team and I believe that Keek is at a similar crossroads as another one of my large investments, Peak Positioning Technologies (PKK.C, PKKFF). After I disclosed a 20-cent target on PKK in December 2015 amid promises of vast revenue growth and changing behavior under a new business plan, the stock has done well, more than doubling from 3 to 7 cents since that time. Despite hiccups in the first half of the year, Peak has finally got its business up and running and I believe PKK can hit my updated 50-cent target some time in 2017 assuming continued execution of the business plan.
I am optimistic that Peeks will be a driver for KEK to follow a similar increase in stock price as PKK. I see several similarities between the two stocks that go beyond the like names:
- Both PKK's Gold River and KEK's Peeks are monetized platforms that have tremendous near-term revenue growth potential, going from nearly no revenue to millions a month almost overnight.
- Both companies are leveraging existing businesses under their control to facilitate the outstanding growth.
- Both companies are heavily supported by deep-pocketed insiders and management teams who own a substantial portion of the float and are interested in building a business, not trading stock.
- Both companies have promised a change in behavior that moves away from the "Wild West" of the TSX Venture and Canadian penny stock world and towards that of blue chips focused on timely and transparent financial releases.
Peeks' livestreaming platform: An easy way to view content and earn revenue
In my previous articles on PKK, I have described the goal of the Gold River platform to modernize China's business-to-business raw material transactions that take place between manufacturers and suppliers. Gold River makes money purchasing raw materials and acting as a middle man by selling to smaller manufacturers at a profit. Further monetization will take place as the online format allows for these small manufacturers to gain access to value-added services like purchase order financing. This may not be a new idea globally, but for the Chinese raw materials industry this platform promises to revolutionize the industry.
Peeks also has potential to be a revolutionary platform and its reach is anyone in the world who uses social media. Online content providers have a new, secure and immediate method of earning an income by offering their viewers engaging content through a live stream on their Smartphone. When I signed up for Peeks, it has a pretty standard feel, on a similar level to Snapchat, YouNow or any other content-sharing social app out there. What differentiates Peeks from the crowd for users and investors is its straightforward payment technology. Like YouNow, Peeks has an incentive program that allows users to earn an income simply by livestreaming their life. But unlike YouNow, Peeks does not have the stringent restrictions put in place on content and anyone who provides their legitimate banking information to Peeks and uploads content will be able to earn cash. The Peeks platform allows content generators to be tipped in real-time with cash by their followers.
There is some debate as to how Peeks will compete against bigger players like YouNow and YouTube, but I believe that in an economy that gets ever more global and one that youth unemployment is a huge issue around the world, there is plenty of room for Peeks to garner significant market share even if it isn't a first-mover in this space. Doubters of the YouNow model might believe that people will get bored with watching the average American teen go about their lives. However, I see Peeks as a tool for anyone in the world to livestream and record important events. Such as a young person in an unstable region who wishes to broadcast political violence and get paid for it as an independent journalist. That person may not have an incentive to start up such risky business if they have to "earn" their right to get paid with YouNow. I also see this as a tool for crowdfunding as YouNow discourages users who solicit tips while Peeks' content generators have an option to enforce tips in order for viewers to see premium content. CEO Mark Itwaru has a vision to expand into the marketplace where the livestreaming of goods and services acts similar to an online shopping channel.
When we are talking about social commerce, security and legality are two common issues that arise. People are worried about having their sensitive financial information breached by hackers and apps like Snapchat have come under scrutiny for their use by teens to send naked photos (essentially child pornography) to each other. This is probably a major reason why YouNow is so strict with its content policy and picky as to who will be approved to share in revenue that they generate.
Mark Itwaru's background of 16 years in the global payments processing industry for online gaming is immensely valuable in ensuring that Peeks meets the strictest of criteria when handling financial information of Peeks' users. A patent search where Mr. Itwaru is the inventor brings up 27 results of granted patents or patent applications relating to the field of secure electronic ecommerce. While maintaining compliance with varying legal standards around the world is a challenge, he is aware of these challenges and Peeks has developed strict G and R ratings for its content. Users will be able to report anything against the law and the company will also hire content moderators to ensure legal guidelines are kept. With this in mind, this more inclusive policy also represents a risk. YouNow has responded with very strict guidelines presumably for a good reason beyond just trying to maximize its own cash grab. Peeks will have to show that it can effectively thwart illegal or annoying behavior on its platform.
Too good to be true? Going from no revenue to millions almost overnight.
For those who follow the Peak Positioning story, they are aware that the company expects to go from essentially no revenues to tens of millions per quarter as the company has received $575 million in purchase orders through to the end of 2017. PKK's subsidiary Asia Synergy Technologies started business with its first revenue on August 12 and Peak expects it to make $100 million in revenue this year and $500 million in 2017 with over $30 million in transactions already processed six weeks after going live. The company's growth trajectory is so outstanding because it leverages Jiang Wang's (Peak's largest investor) existing business selling plastics and other raw materials in China which will now be done online through the Gold River platform.
While PKK and KEK have very different businesses as Peak focuses on B2B in China and Peeks/Keek's primary focus is on global social media users, their business plans share one important similarity that allows for strong growth. They are both using existing business and/or assets to ensure a certain level of immediate-term success that is rarely seen in the penny stock world. Usually microcap businesses make promises of revenue "at some point in the future". This is not the case for PKK and will not be the case for KEK. This morning Peeks announced that it was able to monetize users since its first day of operations and that its livestreaming service will now be pushed to 75 million current and former Keek users.
Mr. Itwaru was smart to buy a significant ownership stake in Keek at bargain basement prices while it was in financial difficulty. He has experience in payments processing and has developed a disruptive ecommerce enabled livestreaming platform in Peeks. But the ecommerce industry is saturated with big players like PayPal and alternative payment methods like BitCoin. The social media world already has the aforementioned Snapchat and YouNow, as well as livestreaming apps like Periscope and Meerkat. Even with ground-breaking technology like Peeks, without a platform to showcase its abilities there was no guarantee that it would get off the ground. So leveraging Keek's 75 million user base allows Peeks' to grow quickly into the millions and gain an immediate foothold into the burgeoning social commerce industry. Keek also provides a channel for certain celebrities who are in Mr. Itwaru's Rolodex to engage with their fans, further ensuring future growth of the business. All Keek users will be upgraded to the new platform through staged push notifications to ensure a smooth transition without overburdening Peeks. One of the risks that management needs to be cognizant of is being sure that system resources can handle the expected growth.
With PKK forecasting $500 million in revenue for 2017, I obviously don't expect Keek's revenue to grow nearly as fast as Peak's. However, while PKK has around 700 million fully diluted shares outstanding, KEK has less than one-tenth of that so it won't need to grow nearly as fast in order to earn an EPS that will eventually support a multi-dollar stock. KEK has 44,556,271 shares outstanding as well as 13,000,000 warrants and 5,243,495 stock options per its latest financial release for the period ended May 31, 2016 for a fully diluted total of 62,799,766.
Mr. Itwaru's vision to buy into KEK and entering into a technology licensing agreement between it and Personas also allowed penny stock investors to speculate on a start-up real-time payment livestreaming service. Snapchat, YouNow and Meerkat are all privately owned and will not go public until valued at market caps in the multi-billions. Periscope is owned by Twitter. KEK is a rare opportunity to get into a venture capital type of endeavor like Peeks at a valuation of $10 to $15 million. To be fair, when KEK first listed in 2014, this exact same argument was made and all it resulted in was a short-lived pump to twice its original RTO price before the stock price slide as I described in the introduction. A dream is nice and an actionable monetization plan is one step up from KEK's previous incarnation but investors are going to need more than that to forget past failures. This leads me to my next two sections.
Mark Itwaru has significant skin in the game
One of the problems with KEK, as well as many other junior stocks in Canada, is that they have been considered "pump and dumps" by many people in the past. News gets out and the stock moves up while certain parties sell, but in the longer term the stock price fizzles as the news doesn't lead anywhere. Since the 200 million unit (shares and warrants) private placement/strategic investment undertaken by Jiang Wang with some units passed on to his associates, PKK's float is substantially owned by Mr. Wang and his associates as well as Peak's management team. If they were to sell, it would be listed on insider sales reports. However, they are not interested in selling at such low prices because they are interested in building a business. This is the same with Mark Itwaru and KEK.
According to SEDI, Mr. Itwaru along with his holding companies Personas and Riavera Corp own a combined total of 17,126,333 KEK shares and 4,789,000 options and warrants, a 38.4% stake on an undiluted basis and 34.9% stake on a fully diluted basis. He recently sold 700,000 shares in a private transaction, a small portion of his overall holding. If he was to sell further, it would show up on future filings. But just like PKK, I don't expect to see any more sales from him at this early stage and at these low prices, because he is trying to build a business. Not pump or trade stock. It makes no sense for him to sell KEK shares at 30 cents when he just put so much time and resources into the back-end work to make the Peeks livestreaming payment process and to renegotiate the licensing deal between Personas and Keek only to sell his KEK shares at a low price right before plans to monetize.
Changing behavior from a penny stock into a blue chip
I believe that one of the main reasons for the downfall of the TSX Venture over the past several years until its slight recovery in 2016 is that so many of the companies on the Venture do a poor job of communicating their financial results to the investing public. The Venture is littered with exploration companies that won't have any revenues to speak of, but even technology companies that are more similar to PKK and KEK try to bury their financial reports on SEDAR and report on the last possible day before delinquency. In Canada, a Venture company has 60 days to report quarterly results and 120 days to report its audited annual financials. For a year ended December, I find it extremely frustrating to have to wait until April 30 to see prior year's financials. Many companies listed on the TSX, NASDAQ or NYSE have released Q1 financials by then.
I have spoken previously about PKK's willingness to improve visibility to shareholders through investor conference calls, timelier financial reporting and projections. The company has taken steps towards those goals so far in 2016 and I expect them to continue to do so once revenue figures justify discussion over a conference call. After speaking with Keek management I feel that this company is prepared to take similar steps. Keek isn't yet ready to make public forecasts on revenue figures or key business metrics such as user growth projections or ARPU, and that is fair because Peeks' early stage growth could be volatile and unpredictable. This will be something to be revisited in 2017 or 2018 when growth becomes relatively steady.
However, KEK management is not only willing, but is excited at the prospect of holding investor conference calls to discuss previous quarter financial performance. When I asked Mr. Itwaru about it, he promised that he will go one step further and will use the Peeks live streaming platform for investor conference calls. A cynical investor could say that something similar has already been done before with Intertainment Media trying to drive investor traffic to its Ortsbo platform several years ago. My response to that would be Keek intends to use these calls like any blue chip company - as a time to discuss hard numbers and facts - not fill the airwaves with fluffy, feel good "news". Mr. Itwaru did not want to give a definite timeline as to when these investor livestreams would start, but I get a sense that they could start in early 2017, in time to discuss Q4 2016 or Q1 2017 performance.
Regardless of when the investor livestreams start to take place, Keek intends to put out financial releases that focus on revenue growth and margins first with metrics like user base growth secondary. This would be the behavior of a responsible management team that is trying to build a business, not pump stock prices without the fundamentals to back it up.
What questions should shareholders expect to see answered in the near future?
Like any investment into the small cap world, KEK is not without its risks. I believe some of this risk has been mitigated for the reasons I pointed out above, however, questions still remain around this investment. There are two questions that I had for Mark Itwaru surrounding my investment in KEK that weren't answered to my satisfaction, but I was assured that they would be in the near future through publicly released statements.
First and foremost, while we are talking about Peeks, shareholders must understand that it is currently owned by Mr. Itwaru's private company Personas and will be licensed out to Keek. Investors only have an interest in the public vehicle KEK, so it is important for them to understand a. what portion of the revenue share is flowing to Keek and b. what back-end support and marketing costs, if any, will Keek be paying in order to support Peeks?
When I posed this question to the CEO, Mr. Itwaru understandably couldn't answer me because it is material insider information. He directed me to the Q1 MD&A which stated that "The Company is currently negotiating an addendum to the existing Technology Licensing with Personas". While unable to give me details, he did reassure me that when this updated agreement is disclosed, Keek's portion of revenue and costs will be clearly known. Some investors may wish to wait until this agreement is fully disclosed and understood. Others like myself are willing to accept the added risk of this near-time uncertainty, assuming that the agreement will be sufficiently beneficial to KEK to support a much higher stock price. After all, Mark Itwaru owns nearly 40% of the float. It's in his best interest to make sure KEK succeeds with a sufficiently lucrative agreement with Personas.
Since Peeks has been released it has started out as a place for young people to show off at their parties, or share tips on certain areas of expertise, or rant on a random topic. I expect this trend to continue as Peeks will enable social media content providers like YouTubers to have another source of income that is paid in real-time that goes beyond Adsense revenues. YouTube has recently put out stricter guidelines for content that is eligible to earn ad revenue, so I expect Peeks to benefit as content generators who have been disenfranchised actively search for another monetization stream.
However, Peeks also plans to expand to initiatives like having an online marketplace. The issue with that is on sites like eBay, PayPal or credit card payments already exist and have a 2-5% service fee. Peeks intends to take a 30% revenue share for content which is in line with similar programs out there but it is quite a bit higher than other forms of online commerce such as marketplaces. So the question that must be asked is what can Peeks provide that might attract an eBay seller to the Peeks platform despite a higher (in essence) service charge?
Mr. Itwaru was able to give me two very direct answers as well as a vague teaser for the future. First, in a market place setting, the company does not intend to charge a 30% revenue share. This revenue share will be variable with "hard goods" being in the 5-15% range and "soft goods" being up to 50%. This is not too out of line for hard goods like the ones being sold on eBay, while soft goods like eBooks usually sold through affiliate marketing programs have commission charges of up to 50%. The second point he stressed is that the revenue share charged will be on the side of the buyer/tipper. The seller does not pay a fee, though there is the argument of semantics as fees on the buyer side should, in theory, lower the prices that they are willing to pay sellers for their goods in an efficient market. The teaser is that Mr. Itwaru expects Peeks to release a feature for the online marketplace that should make it very desirable to use. I didn't get any details beyond that so as investors we have that tantalizing feature to look forward to in the near future.
Price Target: $1.00 per share
Given the ambiguity surrounding the Keek and Peeks relationship and that Peeks is at a very early stage competing against larger livestreaming apps like YouNow and Periscope, it is far too early to try to estimate cash flows for this business. However, when KEK debuted in 2014, it had a market cap in excess of $50 million and at its peak in excess of $100 million solely based on speculation over what it can do with 75 million users. There was no clear monetization plan at that time. Now KEK has a licensing agreement with Peeks, a platform which started monetizing users on day one of going live. It is led by a management team that has experience in payments processing, not supposed social media experts whose strategy is to blow a lot of cash growing a huge user base without having any coherent plan on how to monetize it.
I believe that based on KEK's far superior situation this time around, that it is fair to assume a valuation of close to $1 per user. A $1 stock price would lead to a $63 million fully diluted market cap. KEK has the potential to surpass that with strong revenue growth, but at this stage I believe that is a fair one-year target until some of the risk factors have been addressed or mitigated. If the licensing agreement between Keek and Peeks becomes fully disclosed and understood and Peeks livestreaming platform gains in popularity in these first few months, I expect to substantially raise that target for 2017. But for now, shooting for a 300-400% return on KEK just like what PKK has provided me so far is sufficient.
Disclosure:
I am long KEK.V. I have not been compensated to write this article.