Long-time readers should note some significant changes in how I communicate in the public domain. The primary purpose of this forum is now to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.
Accordingly, this document should not be construed as an endorsement or recommendation of the companies or securities discussed herein. I am not an investment advisor and this is not an investment thesis. It is merely one part of the story, which I present for debate in hopes of determining all risks and upside potential. The disclosure at the end of this piece is critical to understanding the content of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.
As I’ve reported over the past couple of weeks, Smith Micro’s (SMSI) relationship with Sprint is finally ramping up. Sprint’s Safe & Found offering (based on SMSI’s SafePath product) is officially the only Family Location/Protection product Sprint is offering. We’ve also heard from multiple sources that Sprint will be mandating that its installed base migrate to SMSI’s product in the coming weeks.
On the heels of this good news, SMSI surprised investors with a $7 million round of funding. The most notable aspects of this deal were:
1) The money was not needed, but rather wanted. In the video below, I explore the possible reasons. UPDATE: Looking back through my notes, I was reminded that one of my contacts (closely tied to SMSI’s corporate development activities) intimated that they were working on an “interesting project” a few weeks ago. They gave NO CLUE as to what it might be. I assumed it might be their divestitures. However, I now believe that it is related to finding and acquiring more companies like iMobileMagic to leverage into SMSI’s carrier accounts.
2) The deal was done at $2.21 per share. not only is this a premium to yesterday’s close, it’s a 50% premium to where the stock settled after their last offering (which was needed, not wanted). The fact that investors were willing to pay a premium for $7 million of SMSI stock implies that they were privvy to some exciting new information (which is not uncommon — I was provided with NDA information prior to their last round).
I suspect that management will provide insight into this information on their earnings call on Wednesday.
The deal also included warrant coverage, but participants won’t profit from that unless the shares remain persistently above $2.16 (halfway between the $2.21 deal price and the $2.11 price to convert the warrants into common stock).
So, for what did SMSI raise the money? Is it bullish or bearish? I answer these questions and many more in the video below. UPDATE: Spoiler Alert — I believe the money is earmarked for an immanent cash-acquisition. One thing I didn’t discuss in the video is that an acquisitive SMSI will accelerate their path toward the ballpark of a $175 million market cap. This would qualify them for inclusion in the Russell 2000, which would spur the forced buying of approximately 7% of its shares outstanding by institutions. For a company with a relatively low float like SMSI, this could be a great catalyst for the shares, albeit one for which we’ll have to wait until next year.
Appendix: Key Points
Appendix 2: Current Chart Pattern
- Sprint & T-Mobile Agree to Merge! Implications for Smith Micro (SMSI)
- SMSI’s Latest Family App Launches Sprint Relationship To A New Level (4.5 Stars)
- Sprint FINALLY Ramping Up SMSI’s Product!
- Videocast: AEHR 10-Q, MoviePass Update
- AEHR Grows 175% — Beats On The Top & Bottom Line (Buying More)
- GAIA vs. MoviePass: CAC Shows Which One Is A True Mini-NFLX
- Major Update on SMSI
- SMSI’s Safe & Found App: 100,000 Downloads & Counting
- MoviePass Projected To Burn $600M In 2018
- SMSI: Riding A New Trend & Making Its Latest Comeback
- Mark Gomes Research
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Disclosures / Disclaimers: I am long SMSI. However, this is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.
I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.