(Editor's note: This article discusses micro-cap stocks. Please be aware of the risks associated with these stocks.)
I had been expecting a somewhat quieter run up to the Christmas break. I guess I was a little hasty with my article "Papa's Q4 Tech Topup." In that article one of the stocks I focused on was Adaptive Medias (OTCPK:ADTM) and for good reason they have been busy. At that point they were still in the process of the Ember acquisition and I stated that;
"If we can finish Q4 with revenues around $700K, EPS (0.02), the Ember deal done and shares outstanding around 150 million - we will be in good shape and making money by Q2 2014."
The Ember deal is now complete, so we should take a look at where we stand.
According to the 8K, shares outstanding are just a little over 142M. Well inside the 150M I outlined. This was important as it was an all stock transaction. The company also had some outstanding severance obligations and other things going on which we dilutive. I believe that almost all of these should have been taken care of by the time the 8K was filled.
Revenues are less clear as Ember was a private entity. I only attributed about 100K of revenues from Ember. The rest of the revenues I attributed to growth at Adaptive. They reported revenues of $374K for Q3 up from 27K in the 2nd Quarter. Yeah, I really am looking for about 60% growth in revenues. But we will come back to that later.
Since I started covering Adaptive on September 23rd, they have slowly started to get a little more attention. This may have more to do with their new marketing partner Sprouse, but I will take credit where I can. I would encourage you to read what else has been said about them. Most of it has been surrounding the ember acquisition, but there was also this one talking about TrepLabs.
It talks about Blackjack Multiplayer an app currently available on Apple iTunes (NASDAQ:AAPL). The developer's previous app had been a real money maker and is turning to treplabs to make this one pay off too.
The other article I wanted to highlight was by fellow SA contributor Joe Nutural. In his article, he does a good roundup of the new industry as a whole. In his coverage of Adaptive he made this very astute comment.
"What's interesting about this acquisition is the fact that Howard Marks comes along with the deal as an advisor. His being the Co-Founder of Activision Blizzard, Inc. (ATVI) sure doesn't hurt and obviously he likes what he sees, especially as he gave a thumbs up to the all-stock acquisition."
He also gives you a nice rundown of the customers that came along with the deal. We are still guessing what effect that will have on revenues at Adaptive going forward.
So, I had been content to let Joe cover this and update my articles via comments; and then this happened.
Adaptive Medias, Inc. Executes Letter of Intent With OneScreen Inc. To Enter Into Joint Venture or Other M&A Transaction
Here we go again. I may have been slowing down for Christmas, but it appears that they are not. If you review the anouncement you will discover that:
"The non-binding LOI provides, among other things, for the parties to cooperate and engage in due diligence on the other, in order that a definitive agreement may be negotiated and executed, with a transaction consummated on or before March 31, 2014. Any definitive transaction will be subject to board of directors, third-party, and shareholder approvals, as required."
Any deal that emerges from this is going to happen fairly quickly. Any deal must be of benefit to both parties, so where do they find the common ground.
"OneScreen is a recognized leader in the video content space. Adaptive brings expertise and systems for video, as well as mobile and online display advertising. Coupled with our very strong programmatic, real-time bidding (RTB) technology and a focus on proactive anti-fraud measures, we see a tremendous amount of synergy and opportunities in working together. We are looking forward to the possibility of effecting a transaction with OneScreen."Qayed Shareef, CEO, Adaptive Medias.
OneScreen (OTCPK:OSCN) is about expanding audiences and hosting. Although they provide advertising services also, it seems that Adaptive may be able to help them with that. Mobile and monetization are the two key areas. So this is my very simple take on the deal.
"If there are enough synergies the deal will look more like a merger. If it is not more cost effective, then it is more likely a joint venture."
I have talked about the opportunity for growth at Adaptive, but OneScreen is also growing rapidly. It may be that a joint venture is preferable for all concerned.
"OneScreen was recently ranked No. 105 on Deloitte's Technology Fast 500, a ranking of the 500 fastest growing technology, media, telecommunications, life sciences and clean technology companies in North America. Additionally, OneScreen was ranked No. 321 on the Inc. Magazine "Inc. 500″ List of America's Fastest-Growing Private Companies. OneScreen's reported revenue surged to $15.8 million in 2012, compared with $1.1 million in 2009."
In previous articles, I had suggested that Google (NASDAQ:GOOG), Yahoo (YHOO) or Microsoft (NASDAQ:MSFT) would benefit from Adaptive. It would appear that even if the goliaths are not yet interested in working with them, there are plenty of others out there who will.
Regardless of how this deal works out both companies should certainly be on your watch list. The drive and enthusiasm in this space and the desire to succeed will continue to push them both forward. Both of these stocks fall into the micro-cap bracket and as always I urge caution. I recommend that any positions initiated should be small. I also suggest you do your own due diligence and/or seek the advice of an investment professional prior to investment.
That being said I have maintained my position in Adaptive and will continue to hold. The results of any agreement may mean that I change my outlook for the next 12 months in terms of price target.
For the time being I will stick with my 12 month price target for Adaptive Media at $1.20.
I got to listen to a podcast of the CEO answering some questions today. My key take away from the interview was that as follows.
All though they are competing with many other companies in the ad market place they differentiate themselves in one key way. They are the only company that can offer an end to end product. All of their competitors focus on specific parts of the process, but with the Ember deal and now OneScreen, Adaptive is in a position to do it all.
I have added a link to the podcast so you can listen for yourselves.
Disclosure: I am long OTCPK:ADTM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article may contain certain forward-looking statements. I have tried, whenever possible, to identify these forward-looking statements using words such as "anticipates," "believes," "estimates," "expects," "plans," "intends," "potential" and similar expressions. These statements reflect my current beliefs and are based on information currently available. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual results, performance or achievements to differ materially from those expressed in or implied by such statements. I undertake no obligation to update or provide advice in the event of any change, addition or alteration to the information contained in this article including such forward-looking statements