Seeking Alpha

James Sands'  Instablog

James Sands
Send Message
I am a daily active SA member. Drop me a line anytime. I am a transportation professional with a focus on goods movement. I have been following U.S. equity markets since 1998. Over the course of this time, I have been refining and developing methods to construct a portfolio of equity holdings.... More
  • Augme Technologies And Velti Follow Millennial Media's Lead 4 comments
    Jul 12, 2013 9:49 AM | about stocks: HIPP, MM, VELT

    Augme Technologies, Inc. (AUGT.OB) announced their earnings for the company's fiscal year 2014 first quarter. The company missed on top-line and bottom-line estimates, posting just under $5.9 million in revenue for the quarter and a loss of $0.05 per share. Augme was estimated to earn $5.9 million in revenue and to post a loss of $0.02 per share.

    What is important to take note of is that Augme similar to Velti Plc (VELT) is transitioning its business to pursue a greater focus on mobile advertising versus the higher margin mobile marketing side of the business. After listening to the earnings announcement and taking a second look from Seeking Alpha's transcript, there are a few quotes that stand out:

    "Hipcricket's goal is to provide a holistic view into all parts of the mobile ecosystem. No longer requiring brands and agencies to partner with multiple mobile partners and constantly interpret the variety of data sets, instead by providing them all in one place from a single global dashboard in real-time, it enables clients to be flexible, to make dynamic data driven decisions and then ensure their campaign success."

    "During this quarter, we secured new clients increased revenue per customer, maintained our high retention rate and invested in our new advertising vertical."

    These comments have also been echoed by Velti's management. Velti's transition like Augme, is focusing on its development of Velti Media which will serve as a one-stop shop for brands seeking to access a mobile advertising network as well as an ad exchange. Mobile marketing campaigns require much more time and cost to develop relationships with clients while advertising contracts are based on shorter terms. Additionally, Velti is currently facing challenges with respect to the performance-based aspect of collecting on these contracts versus the shorter transactional collections occurring through mobile advertising contracts.

    Another quote from the Augme transcript that is interesting to note is the one below:

    "Our mobile advertising grew in the first quarter about 55% year-over-year there."

    If we take a look back at Millennial Media, Inc. (MM) first quarter earnings, the company grew revenues just over 50% year-over-year. It would appear that Millennial Media and Augme are tracking closely for their respective mobile advertising trends albeit Augme is coming from a much lower revenue base. Velti on the other hand has stumbled as year-over-year mobile advertising revenues declined by 10%. This is obviously due to the company's transition, but still noteworthy as key geographies of Velti's peers are growing much more robustly. Overall revenue trends are depicted in the charts below.

    (click to enlarge)

    (click to enlarge)

    (click to enlarge)

    The charts above depict sequential quarterly revenue growth over the past couple of years. Augme does not disclose revenue by geography as the company is primarily U.S. focused. Augme reported a revenue mix of 64% mobile marketing and 36% mobile advertising compared with 73% and 27% respectively a year ago. Velti's revenue mix for the first quarter was 75% mobile marketing and 25% mobile advertising compared with 78% and 22% respectively a year ago. Based on estimates, Velti is expected to generate significant growth from Velti Media in the back half of this calendar year similar to estimates for Augme and Millennial Media. Millennial Media is experiencing significant growth internationally and domestically through its advertising-based focus.

     

     

    Company

    Stock Price

    Enterprise Value

    Cash

    Total Debt

    FY Revenue Est.

    Days Sales Outstanding

    Gross Margin

    TTM Operating Cash Flow

    TTM Capex

    Augme

    $0.41

    $52.2

    $1.4

    $1.0

    $34.1

    81

    55.6%

    $(12.7)

    $(1.1)

    Velti

    $1.34

    $119.7

    $14.3

    $47.8

    $235.3

    309

    29.5%

    $(6.0)

    $(53.0)

    Millennial

    $9.00

    $582.3

    $133.5

    $0.0

    $274.6

    100

    41.6%

    $2.2

    $(6.5)

    All data in the table above is as of July 10, 2013. All numbers are expressed in millions except stock price, days sales outstanding, and gross margin.

    As both Augme and Velti are shifting their focus to mobile advertising, it is important for investors to consider the items listed in the table above, especially revenues. Augme is growing more robustly at the moment and does not have the same issues with respect to debt covenants and capital expenditures. Velti is working on these items, and the company will hopefully get its business on track to better reflect growth trends with its peers.

    Millennial Media is by far in a superior position with respect to the three companies. International sequential quarterly growth has stayed near 30% the past five quarters, while domestic growth has stayed near 10%. Slowing growth is going to continue to weigh on all three companies during each earnings announcement. Long-term mobile advertising will continue to prosper and for this reason, it is important for Augme and Velti to improve their operations.

    I would not be surprised to see Millennial Media become a legitimate acquisition target by year-end as the company is closest to turning a profit and generating consistent positive operating cash flow. If Augme and Velti can follow suite with improving mobile advertising revenue growth through operational improvements, they too will possibly be acquired or at a minimum, provide significant stock price returns for investors who have taken positions at these recent low levels.

    Disclosure: I am long AUGT.OB, MM, VELT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Themes: long-ideas Stocks: HIPP, MM, VELT
Back To James Sands' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (4)
Track new comments
  • Great piece. Any recommendation on relative weighting or anything else in mobile space?
    22 Jul 2013, 09:39 PM Reply Like
  • Author’s reply » buffett222,

     

    I've got a couple pieces from some research on the mobile industry:

     

    http://seekingalpha.co...

     

    http://seekingalpha.co...

     

    Do you mind expanding on your question regarding relative weighting?

     

    Thanks for the read,

     

    James
    23 Jul 2013, 12:02 AM Reply Like
  • I own MM and was happy (I think) w/ FB reported mobile numbers today...wondering how you feel about investing in the other pure plays, and if so what would be your relative weighting of the 3?

     

    I have hard time paying big multiples for FB, AAPL etc...
    24 Jul 2013, 08:22 PM Reply Like
  • Author’s reply » buffett222,

     

    Right now paying those big multiples is beating the lack of profits for Millennial, Velti, and Augme. However hopefully we get some good improvement from all three this year, especially Millennial.

     

    I would rank Millennial a clear number 1, and place Velti and Augme a distant second. Both companies are in transition phases and are much more risky.

     

    I bought Augme recently near $0.28/share with just a very small purchase to hedge the event that the industry picks up some steam. Velti is very difficult to hold long-term. The company has so many financial-related issues and is revamping a lot to get on track, but the most worrisome piece is the debt obligation currently under negotiation.

     

    There are concerns for Millennial related to lack of a barrier to competition as well as Facebook or other larger internet companies creating ad exchanges, but Millennial is an ad network who works with ad exchanges.

     

    I think tomorrow's open for Millennial will be interesting. Analysts constantly inquire as to Facebook's mobile performance against Millennial so I could see tomorrow go either way, up or down. The stock reacted up 2% initially in after-hours and has come down to under 1% now.

     

    Ultimately I like mobile pure plays such as Millennial because unlike the digital video niche for Tremor Video or Marin Software's digital advertising focus, the opportunity with mobile seems to be more open. Google is dominant because of search, and Pandora, Twitter, Facebook, are dominant as major publishers. There is a ton of growth out there for ad campaigns, for a variety of industries, and connecting to mobile devices is more important than one dominant app or publisher site.

     

    There are better private and/or public plays for video advertising or digital advertising to consider rather than the likes of Tremor or Marin, in my opinion.

     

    Thanks,
    James
    24 Jul 2013, 10:52 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

  • Individual Investor Portfolio Update: Rebalanced And Geared Up For The Long-Term http://seekingalpha.com/a/1a01v
    about 4 hours ago
  • IIF portfolio crushing today's rally up 2% $BIDU $CELG $EBAY $FB $LPI $NTES $PCP $PCYC $QIWI $SFUN $UNP $UPS $WWAV $YNDX Qrtly update soon
    about 21 hours ago
  • Market seems to be adjusting to expectations of no QE and how this will fit with global sensitivities......
    6 days ago
More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.