CrowdGather Inc. (OTC: CRWG) has long been a pioneer in vertical interest social media properties, including communities like Yuku, FreeForums, Forumer, and LeFora, as well as special interest forums like SneakerTalk.com. In aggregate, these social media properties have hundreds of thousands of members generating millions of page views each month.
Unfortunately, the company had trouble monetizing these properties due to the fragmented nature of online forum communities and advertiser reluctance to pay premiums against user generated content. Most media buyers prefer to purchase large blocks of advertising from a single editorial source rather than trying to piece together a number of smaller blocks of social chatter. After considering many options, the management team opted to pursue a somewhat unconventional strategy.
In May of 2014, the company announced the acquisition of Plaor in an effort to better monetize its properties beyond long-tail advertising from ad networks. Management hoped to mobilize its large social media user base to play games on Plaor’s Mega Fame Casino and ultimately make in-app purchases that would drive revenue much more effectively than traditional ad networks.
Early Signs of Success
CrowdGather reported record revenue that increased 54.75% during the 3-month period ended January 31, 2015 as compared to the same period a year ago, driven by gaming revenue from the Plaor acquisition made during the previous year. In a sign that the business model is scalable, gross profits jumped 16.04% to $516,943 over the same period, although the company still reported a net loss of $1,639,866, or $0.01 per share due to increased payroll and marketing expenses.
While the company’s net loss increased year over year due to the Plaor acquisition, the growing top-line revenue and gross profit suggest that a breakeven point could be on the horizon if the company can find financing at attractive terms.
Room for Valuation Gains
CrowdGather trades with a market capitalization of just over $8 million, despite having revenue run rate that’s north of $2.7 million with a 55% top-line growth rate and gross margins of 75%. With its strong growth rates, the company’s stock could justify a higher valuation multiple than competitors in the space that are growing more slowly, such as Zynga Inc.’s (NASDAQ: ZNGA) 9.18% growth rate.
The company also trades near its book value, which is unusual for a high-growth tech stock. According to YCharts, its price-to-book ratio stands at just 1.265x, which means that investors are paying largely for the company’s assets, with its growth prospects being an added bonus. Glu Mobile Inc. (NASDAQ: GLUU) – a competitor in mobile gaming – trades at over 3x its book value by comparison.
Finally, the company operates in an industry that’s primed for growth over the coming years. Transparency Market Research predicts that the social gaming industry will grow at a 16.1% compound annual growth rate to reach $17.4 billion by 2019, driven by increasing demand for smartphones and tablets. Virtual goods and in-app purchases are expected to drive revenue in the space as well.
More Irons in the Fire
CrowdGather’s Plaor acquisition has helped accelerate revenue and provided visibility in terms of reaching a breakeven point, but investors shouldn’t forget its social media networks. Last year, the company announced the launch of a new ad platform designed to make it easier for ad buyers to purchase advertising across its vertical interest forum networks – solving a key pain point.
According to Zack’s Research, forum users are 3.5x more likely to proactively recommend a purchase, 3.5x more likely to share links about new products, 4x more likely to post online reviews and ratings, and 10x more likely to also publish a blog where products could be mentioned. These dynamics make the company’s audience extremely valuable – it’s just a matter of reaching them.
Combined with the addition of new titles to the Mega Fame Casino franchise, the company has many irons in the fire that could drive revenue growth over the long-term. Catalysts from these dynamics could also help the stock price reach a more appropriate valuation over the medium-term, which makes the stock worth a second look for investors in the rapidly growing social gaming space.
More Information
- Company Website
- Investor Presentation
Get More Information on CrowdGather here:
http://www.tdmfinancial.com/emailassets/crwg/crwg_landing.php
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