Crowd Mobile Limited (ASX:CM8)

Cost Reduction Paves Way for Turnaround

Overview: Crowd Media Holdings Limited (“Crowd Media”, “the Company”) is an Australian technology company focused on mobile software and digital marketing services. The Company is focused on two principal divisions: the Mobile division consisting of a Questions and Answer Platform (“Q&A”) and a Subscription service (“Subscription”) and a Digital Marketing division focused on social media and influences marketing. The Company operates in over 60 countries supported by 30 languages and has worked with over 10,000 digital influencers to date. Wise-owl’s most recent update was issued in November 2018 and was titled “Low Market Cap Deserves Attention“.

Catalysts: Crowd Media has made significant progress since the beginning of the year, investing in growth opportunities and reducing its cost base, resulting in a leaner business with increased operational leverage. The recently completed debt refinance provides the company with financial flexibility while a strategic review will deliver approximately $3.5 million in annualised cost savings. As the Company’s funding position improves, attention will now turn back to top-line growth and a return to profitability. Successful execution of its refined sales and marketing strategy is a major catalyst for a company valued at just 0.2x revenues.

Hurdles: Following a period of operational volatility and industry headwinds there is no guarantee against further erosion of its earnings base amid mixed performance across its key operations. While the debt restructure provides financial flexibility, Crowd Media’s balance sheet remains a risk, in particular if operational targets are not achieved. Early signs of the Company’s Digital Marketing division are promising but there is no guarantee that ongoing growth can be achieved as the Company may be subject to increasing competition.

Investment View: Crowd Media offers exposure to the growing market for social media and influencer marketing and has achieved a number of key milestones since the beginning of the year. We see the potential for the combined business to return to growth and profitability following a two-year period of operational challenges. However, success is not guaranteed as a number of key outcomes need to be delivered over the coming 6-12 month period. The recently initiated strategic review will deliver significant cost savings and transforms Crowd Media into a leaner company with improved operational leverage. With an undemanding valuation of 0.2x FY19 revenues, successful delivery of the refined sales and marketing strategy has the potential to trigger a re-rating of the stock. Wise-owl will continue to monitor the stock for its turnaround potential and we will keep members informed about the progress of the Company.

COMPANY OVERVIEW

Crowd Media is an Australian technology company focused on mobile software and digital marketing services.

Following a period of transition, Crowd Media – formerly Crowd Mobile – has undertaken a strategic review and realigned the strategic focus of the company aimed at maximising value and exploiting growth opportunities. During the past 12 months, the Company shifted its focus towards the social media and influencer marketing industry and changed its name to reflect this transition.

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Will Crowd Media return to profitability?

Crowd Media is principally focused on:

  • the Mobile division with a portfolio of trademarked software applications (“apps”) and messaging services for mobile devices, orientated toward the delivery of consumer advice;
  • the Digital Marketing division focused on the delivery of branded content for companies and digital influencers

The Mobile division operates in over 60 countries and 30 languages and the Digital Marketing division has worked with over 10,000 influencers globally.

STRATEGIC REVIEW & OUTLOOK

Historically, Crowd Media has delivered earnings and top-line growth but industry headwinds and operational challenges have prompted management to invest in new avenues and initiate a strategic review in
mid-April with the overall objective to return the business to profitability.

The Company has invested heavily in new revenue opportunities and recently announced significant cost-cutting measures, which are expected to result in annualised cost savings of $3.5 million. As a result of these initiatives, management forecasts a return to positive EBITDA and operating cash flow from H1 FY20.

Figure 1: Early contract wins across continental Europe demonstrate the potential of the Digital Marketing division.

Crowd Media will focus on growing and investing in the Digital Marketing division whilst restructuring and stabilising the mature Mobile division.

Revenues from digital marketing increased at approximately 240% to $1.7 million during FY19 and early contract wins with household brands demonstrate Crowd Media’s ability to service a broad range of brands across multiple geographies and languages. Whilst this business unit is loss-making and is expected to require ongoing investments in the near-term, it also represents a major growth opportunity for the Company.

The Mobile division – which consists of Q&A and Subscription – currently accounts for the majority of the Company’s revenues. During FY19 the combined business unit has delivered approximately $23 million in revenues, a 39% decline versus PCP. Management believes that headwinds are receding and a return to growth could be a major catalyst for the Company.

There are significant synergies between the two business units and we see the potential for the Company to unlock further value and yield cost improvements over time. With an undemanding valuation of 0.2x FY19 revenues, successful execution of Crowd Medias growth strategy could drive significant interest toward the stock.

THE BULLS AND THE BEARS

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THE BULLS SAY

  • Crowd Media has made significant progress since the beginning of the year, investing in growth opportunities and reducing its cost base
  • The Digital Marketing division has delivered $1.7 million in revenues in its first full year of operation and could be a powerhouse for growth
  • The recently completed debt refinance provides the company with financial flexibility while a strategic review will deliver approximately $3.5 million in annualised cost savings
  • There are significant synergies between the two business units and we see the potential for the Company to unlock further value and yield cost improvements over time.
  • With an undemanding valuation of 0.2x FY19 revenues, successful execution of Crowd Medias growth strategy could drive significant interest toward the stock
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THE BEARS SAY

  • Following a period of operational volatility and industry headwinds, there is no guarantee against further erosion of its earnings base
  • While the debt restructure provides financial flexibility, Crowd Media’s balance sheet remains a risk
  • The Company’s financial position could further deteriorate if operational targets are not achieved
  • Early signs of the Company’s Digital Marketing division are promising but there is no guarantee that ongoing growth can be achieved
  • The Company may be subject to increasing competition
Disclaimer

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this report is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its reports. As a result, investors should be aware that the S3 Consortium may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making any investment decision. The publishers of this report also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this report.

Publishers Notice

The information contained in this report is current at the finalised date. The information contained in this report is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

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