CrowdGather Inc. (OTCPK:CRWG), operator of a growing portfolio of special interest forums and enthusiast message board communities, recently raised $1 million in a preferred stock financing and began efforts to restructure its business. With these efforts in place, investors may want to take another look at this undervalued Internet stock.
Bolstering the Balance Sheet
CrowdGather entered into a Securities Purchase Agreement with an investor on April 8, 2013, who purchased 300,000 shares of Series B Preferred Stock for $1.00 per share.
The transaction has already provided the Company with $300,000 in cash, with an additional $300,000 expected by July 12, 2013. The remaining $400,000 may be purchased at the option of the investor or by other qualified investors, providing combined potential proceeds of up to $1 million to the Company.
These proceeds will help bolster the Company's balance sheet, which contained $489,073 in cash and $896,009 in current assets during the quarter ended January 31, 2013. Additionally, the financing will support the Company's initiatives to restructure its business and refocus on profitability.
Restructuring to Focus on Profits
CrowdGather's financing came with a directive to restructure the business for improved operational efficiency and leverage, according to the press release that announced the financing. It's also no surprise that the Series B investor, who was a shareholder prior to the financing, continues to remain optimistic about the Company's growth prospects.
According to CrowdGather, CEO Sanjay Sabnani, quoted in the financing press release, these restructuring efforts have already begun; "As we disclosed in our third quarter fiscal 2013 earnings release, we have already begun cost reductions and will endeavor to reduce cash expenses by over 40% while maintaining current revenue levels."
Additionally, the Company's high gross margins suggest that revenues could quickly scale, bringing the Company closer to breakeven and potentially unlocking significant value for shareholders.
"We believe there is organic growth potential in our existing portfolio of properties and this will be our primary focus," added Mr. Sabnani. "In parallel, we are also considering several options of a strategic nature in order to achieve our two short-term goals, which are to achieve a cash flow positive state and to enhance shareholder value."
Attractive Entry Point for Investors
The Company's balance sheet, as of January 31, 2013, reported shareholders' equity of $14,561,528, or approximately $0.25 per share. Even adding in the potential additional shares relating to the financing, the book value still far exceeds the current market price, suggesting a deep discount for a company that could reach breakeven.
The Company trades at a discount to peers like Facebook Inc. (NASDAQ: FB), LinkedIn Corporation (NASDAQ: LNKD), and Yelp Inc. (NASDAQ: YELP) when looking at price-to-book or price-to-sales ratios, too. Given its high margin business model, the market should be assigning a premium multiple, particularly if the Company becomes profitable.
And finally, the Company continues to improve its existing properties, while cutting operating costs by 40% at the same time. A new homepage design was released for pbnation.com, while Yuku.com will soon have an updated mobile app for iOS and Android that includes many new features. These changes help the properties remain competitive in a rapidly growing market.
In the end, CrowdGather represents a unique opportunity for investors, as a company that's rapidly approaching breakeven and appears to be significantly undervalued. Even after the financing and some dilution, the company's compelling value proposition and valuation might be too much for Wall Street to ignore much longer.
Disclosure: I am long OTCPK:CRWG.
Additional disclosure: Please read our blanket disclaimer as it relates to all of our postings on our SA profile. A link to our full disclaimer is located on our SA profile page. It relates to forward looking statements as they appear on CrowdGather's press releases, and our disclaimer on our profile and website.