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Leading-edge mobile media companies: Buy Yoc, Sell Augme Technologies

|Includes: AAPL, Alphabet Inc. (GOOG), HIPPQ
Based in Berlin, Germany, Yoc AG (YOC) is a mobile media company with a market-leading initiative into browser-based mobile media platforms (as opposed to downloading applications). Browser-based smart phones will be the future – especially as Android-based mobile phones proliferate around the world.

Usually, pure-plays in hyper-growth niches like mobile media are reserved for the venture world, and in any case, quickly arrive at sky-high valuations. About one year ago, Google (NASDAQ:GOOG) paid $750M or 24x 2009 revenues for Yoc-peer AdMob, and Apple (NASDAQ:AAPL) paid $275M or 13.5x revenues for Quattro Wireless, according to mobile ad network revenue data from IDC.
Debt-laden, public-peer Velti (VEL) is trading at 3.5x trailing revenues in the UK. Yoc, however, is only trading at 2.0x trailing revenues with a market cap of €59M ($80M).

The knock on Yoc has been a slowdown in revenue growth from 100% in 2008, to more mundane 10% to 15% increases in 2009 and 2010. This year, management expects top-line growth to reaccelerate to 25%, equating to €38M ($52M) in revenues, led by rich-media mobile advertising and mobile browsing initiatives. Yoc was mildly profitable in 2010, and generated an estimated €1M in EBITDA in Q4 of 2010. If Yoc's new mobile initiatives are successful, there is a lot of upside to these numbers.

Our Quan Technology Fund recently initiated a position in Yoc. As a hedge, we shorted Augme Technologies (AUGT.OB). Augme's mobile advertising and media products had strong sequential revenue growth in 2010 from a very small base of almost zero. But the valuation is ridiculous. At a market cap of $243M, Augme is trading at 123x trailing revenues with a net loss of $10M, and only $0.7M left in cash as of November 2010.


Disclosure: I am short AUGT.OB.

Additional disclosure: I am long YOC