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William Shatner Says Lottogopher (LTTGF) Is The Next Priceline

|Includes: LottoGopher Holdings, Inc. (LTTGF)

Summary

Market trends in favor of online lottery spending.

Acquisition of large, marketable lottery related database.

Aligned executive stock incentives.

But be forewarned: very speculative investment.

LottoGopher (OTCQB:LTTGF) enables members to order lottery tickets online with a debit or credit card at LottoGopher.com. Members pay a subscription fee of $99 annually and then purchase lottery tickets on an as desired basis. Originally launching in California as the only compliant web portal with the Powerball, Mega Millions, and Superlotto, LottoGopher is now available in California, Virginia, and Texas.

Or you can view the official summary from William Shatner, LottoGopher's spokesperson.

Now onto the stock price and company fundamentals. The stock is down 85% from its IPO debut at 50 cents about 1 year ago. Its market value has been placed at around 6-7 cents based on trading to date and a recently completed private placement issuing 20,248,333 for about $1.2 million. 

The company has assets of about $1.8 million. Revenue is a paltry $10,000 per the last quarter financials (note: they are listed in CAD but converted to dollars in this article) representing an estimated 400 recurring customers if we assume they are all subscribed at the annual rate of $99. Q2 financials should be available in early August and I would not expect a significant increase in revenues yet.

Market trends favor consumer moves from in store purchases of goods and entertainment to the web. Per Lottogopher's metrics, during a test marketing period they had an estimated visitor to paid conversion rate of .4%, albeit with a small sample size. If that conversion rate is maintained or increases, than LottoGopher's biggest problem is marketing one -- generating targeted web traffic. But this problem has been solved numerous times and in many cases, can even be outsourced to data driven web marketing firms.

Some estimates suggest that 90 million American's buy lottery tickets. If LottoGopher can convert .3% of those Americans, creating 270,000 paying subscribers, that would represent $27MM in recurring revenue. There are likely other monetization opportunities or possible adjustments to the sales model on a 2-3 year horizon such as 'convenience fee' style purchases similar to Ticketmaster.

And it looks like LottoGopher's management recognizes marketing as the key issue to tackle with an acquisition of FreeLotto, which reports to have over 65 million members and attracts 7.3 million unique visitors monthly. That sounds like targeted traffic to me. Assuming that Lottogopher management successfully integrates its offering into the FreeLotto workflows and develops a high quality user acquisition funnel, we should see significant upticks in revenue over the next 3-4 quarters.

Lastly, executive compensation and partners seemed to be relatively aligned with stockholders. For example, in the last quarter the company granted 2.85 million stock options to directors, officers, consultants, and advisory board members with an exercise price of $0.15 ($0.20 CAD). Obviously, if achieved this represents a 2-3X from the current price floor and suggests that management is serious about the long term upside.

Now to consider some of the negatives here.

The stock is of course incredibly speculative. While the recent IPO suggests a serious attempt to grow the company, LottoGopher has been around for about 8 years, making you wonder what has changed that suggests returns for investors are forthcoming.

Management apparently saw fit to invest in a random Cannabis company, which is clearly irrelevant to their business.

Additionally, I mentioned that compensation is generally aligned, but the CEO currently is salaried at $250k a year, which for a 'start up' with such low revenues is a hefty ongoing cost. The embedded assumption is that the CEO is highly capable, but as an investor a high salary contrasts with current revenues and begets questions around what specific milestones have been set by management and the board around user acquisition and those revenues.

That said, I would argue that the market has changed since 8 years ago with consumers more apt to purchase entertainment goods online, the CEO has two other consumer business successes under his belt, and everything listed above is readily transparent and available for consideration by prospective investors in the company.

So, if you are interested in a literal lottery ticket, and you believe that the CEO and management are truly committed to building long term value for investors, consider adding LottoGopher and checking back on it in 3-4 quarters.

Company data sourced from LTTGF investors pages

Disclosure: I am/we are long LTTGF.

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.