Siyata Mobile: Identifying A Market Opportunity And Capitalizing On It
Summary
- Siyata Mobile has recognized a market niche, offers a solution, and made international connections to capture this market.
- Tier 1 carriers have validated the flagship product, as has an independent U.S. government agency.
- Siyata is trying to expand and exploit a void created by the absence of Motorola.
- The flagship product isn't expensive and offers clear advantages.
Siyata Mobile (SYATF) is a Toronto-based company providing connected vehicle solutions for commercial fleets and first responders. This is a very small company with a market cap of about $50 million. Hard to believe what it is accomplishing despite its small size. Siyata has created a market niche and a product to fit that niche, connected into vast sales networks through partnerships with tier 1 carrier companies in the U.S as well as in Canada, Israel, Australia, and New Zealand, and the flagship UV-350 product fits perfectly into U.S. government first responder initiatives.
The UV-350
This device is a $1,000 all-in-one vehicle-mounted smartphone for commercial fleets such as taxis and trucks and for first responders such as police vehicles, fire vehicles, and ambulances. The device eliminates the need for separate navigation, phone, fleet management, and mobile radio components. CEO Mark Seelenfreund estimates that buying the devices separately would cost five to ten times more than the UV-350 costs. I'm thinking it eliminates a lot of clutter, and the noise cancellation feature as well as the device being connected to the car battery, are big pluses.
Source: Company Investor Presentation
Some of us are old enough to remember when Motorola was known for cool devices such as their Razr phone. Google (GOOG) (GOOGL) bought Motorola and focused on Motorola's patents instead of their product niches. Motorola was great for communication gadgets of all kinds and dominated commercial and first responder motor vehicle communications. Siyata has identified this customer base and is the only company offering the targeted audience an all in one communication device.
The UV-350 is operated via push to talk software. It works similarly to a walkie-talkie but over a nationwide cellular network. There's no need to dial a number, and the device provides instant communication between an individual and a designated group. The device meets hands-free driving legislation.
The U.S. Market Opportunity
The company along with its newest partner, AT&T (T), launched U.S. sales of its flagship UV-350 device in early June. Why is AT&T partnering with tiny Siyata? There's no one else that offers an all-in-one connected motor vehicle solution. AT&T is pursuing the opportunity to add monthly charges from an addressable market of 10 million commercial vehicles and 3.5 million first responder vehicles in the U.S. (per investor presentation), and doing so, albeit unintentionally, validates Siyata's product.
The U.S. opportunity for Siyata is enhanced by the current partnership between AT&T and the U.S. government in creating The First Responder Network Authority designed to create a broadband network for first responders which includes police, fire, ambulances, and yellow school buses. The UV-350 supports band 14 for FirstNet, which is the US First Responders 4G LTE network and is the only in-vehicle device that has been tested and certified to operate on FirstNet, again validating the product.
Siyata has indicated that they will soon announce another partnership with a U.S. based tier 1 carrier.
Other market opportunities
The U.S. is the largest market opportunity for Siyata, but the company is currently also pursuing sales in Israel, Canada, and Australia and plans to expand into Europe and South America in the near future. I separated the U.S. from other markets because of how much bigger the opportunity is in the U.S.
In Canada, Siyata has a tier 1 carrier deal with Bell, Canada's largest LTE network. There was a recent UV-350 launch in Israel as well as recent New Zealand and Australia product launches.
There's also the potential to offer more add-on products to complement their current lineup of booster sets and recurring revenue stream from mapping and engine monitoring software.
Company History
Siyata was based in Israel. It acquired Canadian company Signifi Mobile Inc. in 2016, listed in the TSX Venture Exchange under the symbol SIM, and moved its headquarters to Toronto. The acquisition was complementary as Signifi's cellular booster kits were used to increase cellular coverage for Siyata's connected vehicle devices.
Signifi also provided Siyata with a North American customer base and a license agreement with Uniden. Siyata's Truckfone and Voyager 3G connected vehicle devices were rebranded with the well-known Uniden trademark.
The company enjoyed early success with strong revenue growth until sales slowed down in late 2017.
Source is Investor Presentation
Sales started to slow as the market started turning its attention to 4G, and Siyata was slow to react. The company has learned from this experience as it is already working on rolling out 5G while it has barely begun its 4G rollout.
Siyata also made a major adjustment in how it pursues its market going away from direct sales towards selling through wireless carriers. It is well funded to introduce their products not only in the U.S. but globally after getting its largest cash infusion since going public by converting over $6 million of warrants in March and reported cash on hand of $5.1 million and working capital of $8.5 million. The company does not expect any additional funding will be necessary.
Siyata sold 3G devices for $300. The 4G devices are sold at $1,000 each. Reported gross margins for the just completed 2019 1Q were 28% with 3G accounting for 60% of sales. Going out into the next few quarters, gross margins should improve with 4G sales becoming more prevalent.
It stands to reason that the four partner tier 1 carriers, Bell Mobility, Motorola Israel, Pelephone, and Partner Communications will have better sales that Siyata was able to accomplish on its own for its 3G product. I am expecting that sales starting next quarter and subsequently will break company records.
The U.S. addressable market alone, just for the UV-350 is worth $1.3 billion (cost of device x commercial and first responder vehicles). There's early success, but only the quarterly reports will be a true measure of market penetration.
CEO Mark Seelenfreund in an interview last week said he expects the company will be profitable this year, something that the company hasn't achieved in its history. I estimate that revenues will have to come in at about $17 million without margin expansion, and, of course, lower revenues depending on how much of a margin improvement, for the company to see a profit.
Risks
The 4G product rollout is an all-in proposition for the company. Should their product fail to gain market traction, the company will lack funding to continue to exist.
There is no real competitor for their product other than older technology that they are attempting to replace. There aren't major barriers to competition entering this space except for market size. Large companies would probably not be interested in serving a niche market and small companies may lack the resources to develop and market a competing product. Siyata has burned over $20 million in just a few years to get to where it is now. Should competitors spring up, Siyata will have a two- to three-year advantage.
Conclusion
The flagship product is inexpensive and offers its targeted audience convenience of use, safety, and top of the line features. Should sales materialize, the company has the potential to add complimentary products and a recurring revenue stream. Partnering with tier 1 carriers validates its product and provides top of the line sales teams. FirstNet certification will also be a positive in obtaining market acceptance of the flagship product.
I like the product and believe that lining up the tier 1 sales partnership along with increasing the product price will be successful and that the company has a good chance of becoming profitable in the near term. Revenues nearing $20 million are just a small fraction of their addressable market.
I write about small-cap stocks and very much welcome discussion.
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Disclosure: I am/we are long SYAAF. 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.