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Overview: Crowd Mobile Limited ("Crowd Mobile", "the Company") is an Australian technology company focused on mobile software and mobile marketing services. Its principal asset is a Question and Answer platform (‘Q&A) and a mobile payments network spanning 160 telco carriers, 54 countries, and 30 languages. Founded in 2005, the Company listed on the ASX in 2015 via a reverse merger with Q Limited. We initiated coverage on Crowd Mobile in February 2015. After completing the $42million acquisition of Track Holdings BV ("Track") in October 2015, the Company has faced operational and fiscal challenges, which is the subject of this update.
Catalysts: The driver of Crowd Mobile’s share price decline in 2016 has been multi-pronged. The Track business has substantially underperformed, with EBITDA declining by more than 50 percent versus its historical results, whilst uncertainty regarding the Company’s capital structure has further diluted investor confidence. Management has addressed these issues by jettisoning unsustainable parts of the former Track business, which we understand is now operating on a stable base and designed to help grow the Q&A business. Visibility on Crowd Mobile’s capital structure is also being resolved via aggressive principal repayments of its convertible loan facility, with net debt currently $3.4million following placement in April.
Hurdles: Whilst performance of the Track (aka "Subscriptions") business unit has stabilised, there is no guarantee against further erosion of its earnings base. A lack of growth within the Subscriptions division may challenge Crowd Mobile’s ability to attract an appropriate valuation for its Q&A division, which saw EBITDA more than double in HY17. With management resources to date largely focused on overcoming operational issues within the subscriptions business, the strategic nature of Crowd Mobile’s international mobile payments network remains to be crystallised.
Investment View: Crowd Mobile provides profitable exposure to the market for mobile software and services. Whilst the Company’s performance post-acquisition of Track has been disappointing, recent initiatives to stabilise earnings and the balance sheet deserve attention. The introduction of new institutional shareholders to the register in April at a premium to market is a testament to the strategic nature of Crowd Mobile’s international mobile payments network, and cash generative abilities. With the Company showing early signs of a turnaround, our current advice is to ‘hold’ as we place our valuation ‘under review’ with a view to providing another update in the coming weeks.
THE BULLS AND THE BEARS
THE BULLS SAY
- Crowd Mobile is a cash flow positive Company with a highly diversified revenue base supported by 160 telco partners in 54 countries and 30 languages
- Execution of $5.4million equity placement in April at a premium to market is a testament to management’s recent turnaround initiatives and growth strategy
- Rapid retirement of borrowings associated with the 2015 Track acquisition is providing greater certainty for Crowd Mobile’s capital structure
- Whilst the operational performance of the Track acquisition has been disappointing, Crowd Mobile’s Q&A division has continued to witness robust growth
THE BEARS SAY
- Despite the Company’s increased scale following its acquisition of Track, high interest and amortisation charges have impacted profitability
- Poor performance of the Track business under Crowd Mobile’s stewardship may impact confidence in management’s ability to drive sustainable growth from its m-payments network
- Equity required to finance and support the Track acquisition has resulted in a diluted share count more than 70 percent greater than our projection at the time of the Track acquisition
- Momentum within the Q&A business may not get the attention it deserves as the subscription business stagnates
General Information Only
This material has been prepared by StocksDigital. StocksDigital is an authorised representative (CAR 000433913) of 62 Consulting Pty Limited (ABN 88 664 809 303) (AFSL 548573).
This material is general advice only and is not an offer for the purchase or sale of any financial product or service. The material is not intended to provide you with personal financial or tax advice and does not take into account your personal objectives, financial situation or needs. Although we believe that the material is correct, no warranty of accuracy, reliability or completeness is given, except for liability under statute which cannot be excluded. Please note that past performance may not be indicative of future performance and that no guarantee of performance, the return of capital or a particular rate of return is given by 62C, StocksDigital, any of their related body corporates or any other person. To the maximum extent possible, 62C, StocksDigital, their related body corporates or any other person do not accept any liability for any statement in this material.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
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