SMSI: Safe & Found Downloads Spike! Sprint Says Family Locator “could stop working at any time”

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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.

With Smith Micro’s (SMSI) earnings report coming on Wednesday, momentum appears to be building in its relationship with Sprint. This weekend delivered a new slate of data points for our investing and trading pleasure.

From what I’ve seen, Sprint employees have now (finally) been instructed not to reveal an exact sunset date for Family Locator (the product SMSI is replacing). That’s a smart move on their part, because they’ve been working hard to engineer a smooth transition. However, this isn’t stopping them from making comments like this:

Capture

In the meantime, people have noted that Family Locator continues to receive updates. Many are speculating that it’s to urge customers to switch over to Safe & Found. The latest download rankings lend credence to that view. Over the past week, Safe & Found has started streaking up the charts:

S&F Google

Piecing it all together, Safe & Found’s latest version appears to have finally hit the sweet spot. According to Sprint representatives, the app’s one-star reviews has been dominated by customers who either don’t want to switch apps or don’t feel that they need the new functionality (parental controls, etc).

As I’ve reported before, one-star reviews represent just 0.21% of downloads to date (just 1 for every 476 downloads). Since April 16, that number has improved by nearly 33% to 0.15% (1 for every 678 downloads).

In other words, the one-star reviews has virtually no value to anyone assessing Safe & Found or Smith Micro’s shares.

To the contrary, anyone looking at the Safe & Found reviews as a time series (the proper way to look at it) can see that Safe & Found’s reviews are moving quickly, markedly, and consistently up.

SMSI Reviews

Perhaps this is why Bill Smith and board member Andrew Arno made such generous concessions as part of SMSI’s March offering:

SMSI March Offering

It basically says that Smith and Arno agreed to convert their preferred shares into common shares (eliminating their right to the 10% payouts) while also agreeing that the converted shares can not be registered for sale. They also agreed to a lock-up, so they can’t even think about selling shares until September. Last but not least, the maturity dates for their promissory notes (debt) got moved out from 2017 to 2020.

Clearly, everyone involved with the negotiations had to feel confident about the business to agree to such concessions without receiving anything (aside from the new funding) in return.

Finally, it is now crystal clear why the latest round was priced above the market. In light of the concessions and pricing of the prior round (which weren’t replicated in last week’s round), we can only conclude that SMSI has a new accretive acquisition imminently queued up. We can only speculate as to what they’ll be buying, but the sense of urgency suggests that it might be something they can immediately leverage into their Sprint relationship.

Unlike the last round, CEO Bill Smith appeared pleased with this round and hinted that 1) an acquisition is indeed planned and 2) things are accelerating at SMSI:

smith

In the meantime, the shares have become a lot more interesting for traders. The chart shows a pretty clear pattern / channel. Further, the spikes and dips have both proven playable for anyone interested in trying to make a little extra cash on the side. Things should get even more interesting as the lower support line converges with the 50 and 200 day moving averages, which proven supportive in recent days.

smsi57

So, what can we expect from Wednesday’s earnings call? Well, obviously Q1’s numbers won’t show a lot of movement (yet), because much of Sprint action has occurred since the end of Q1. However, management’s commentary and guidance should be quite upbeat.

Some key reasons to expect a positive call center around a lot of information we’ve recently gathered:

  • Location Labs sunsetting soon
  • Safe & Found download rank spiking
  • SMSI’s above-the-market offering for what is anticipated to be another accretive acquisition (because the company doesn’t need that much cash for any other reason).
  • Mr. Smith appears pleased with everything that’s happening for the company. He’s the largest stakeholder and will have the opportunity to tell investors why on Wednesday evening.

There’s a lot more than this to share, but I’m still gathering supporting data points and formulating how to present it all. Suffice it to say that Safe & Found isn’t the only game in town for SMSI.

In the meantime, investors should continue to expect some compelling trading opportunities. The intraday volatility, growing volume, and SMSI options provide an array of ways to augment a buy-and-hold / core-holding approach. I may present some of the more compelling ones in the near-future.

Stay tuned!

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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.

53 thoughts on “SMSI: Safe & Found Downloads Spike! Sprint Says Family Locator “could stop working at any time”

  1. Mark, again, thanks for all you do and the in-depth research on these stocks, especially SMSI and HMNY. You have certainly saved me (and countless others) from losing a huge amount of money.

    Will you be participating on SMSI’s call tomorrow? If so, can you give us a hint on the questions you will be asking? Perhaps we can participate through this forum. I am especially interested in the other markets (after we get an update on the Sprint relationship) SafePath will be getting into. We have heard about Latin America, it would be great if Bill can provide some color on their path moving forward.

    Thanks.

    Like

    1. Yes sir!

      Folks can submit their questions here. I can’t guarantee that I’ll be able to ask them all, but you can bet that I will try to ask all the good ones.

      Thanks for the post. Much appreciated!

      Like

    1. Except for the # of devices. People are going to want to tag there dogs with IoT collars. Imo, there should be a premium add. $1 extra per month per device added. But, that’s Sprint’s deal, not Smith’s concern.

      Like

      1. Bingo. Very few customers need more than 5 devices at this stage. Sprint will get ‘em on the up-sell (after getting customers hooked on the base product) when the IoT devices are added.

        Like

      1. sure!

        Been looking at changing to Sprint. I have kids and didn’t know I needed S&F until I looked at SMSI. Right now on Sprint you can get 5 lines with hulu, with 10GB per device, add S&F and your bill is $106.99. Best phone deal in town.

        Liked by 1 person

  2. The very 1st line of the article: With Smith Micro’s (SMSI) coming on Wednesday, I think you forgot the word “Earnings”

    Like

  3. Hi Mark,

    This is a bit late notice. But if you’re on the SMSI CC call this afternoon, perhaps consider asking them for some color surrounding user LTV for their S&F platform.

    I ask because after running some models for GAIA, their numbers look very good from a risk/reward perspective. SMSI’s S&F platform operates on a similar model in that each paying subscriber Sprint acquires will have a value. If we have some data on this, it would really help us get a more accurate forecast to their future revenue/profit expectations.

    Cheers
    David

    Like

  4. For a stock that just did an above market offering, very weird trading. Bought more end of day yesterday and this morning for trading purposes. Mid and long term I think Mark’s thesis plays out but short term who knows. I anxiously wait for today’s conference call.and hope that the company earns at least 5:7 million from old business lines plus whatever Safe and Found gives us.

    Like

    1. Exactly as I expected. The sprint ramp is the catalyst for overall revenues to ramp up. They reiterated the $3.5 million number and the profitability associated with that.

      They also said that Sprint has upcoming initiatives to transition the rest of the customer base over. That was all I needed to know! 🔥🔥🔥

      Liked by 1 person

  5. Hi Mark,

    Thanks for the questions in the CC. Two key points I noted:

    1. Apple download number better than their expectation. I believe this is a significant positive data point.

    2. Revenue from S&F in the hundreds of thousands.

    These two data points should help us model their current user counts quite a bit, thanks again for the questions.

    On a related note;

    Charles mentions the sunset date will correspond to some marketing event. I believe this will be closely related to the retail marketing event he mentioned several times. If we can find out the retail marketing event timelines, we will most likely be able to discover the sunset date.

    Cheers.

    Liked by 2 people

  6. Mark, I commend you on trying to get Bill to answer questions but he is very evasive on specifics. I guess there are really no analysts following this company except for the guy ahead of you and I do not think he was impressed.

    Liked by 1 person

    1. True, but you haven’t asked enough questions if unless half of them get evasive answers. 😈

      As for analyst coverage, stay tuned. I have received some information on that as well. 😉

      Like

  7. Yep. Hard to be impressed when they are so excited that they sound half asleep! I did like what he said about “we intend to seize this opportunity”, but wish they sounded more excited about the opportunity. This is one of those calls that reading the transcript is more exciting than hearing it.

    Liked by 1 person

    1. For anyone who has spoken with Bill Smith, that’s Bill Smith! 👍🏼 Much better than the bombastic promotionalism that we get from Ted Farnsworth. 👎🏼

      I got what I needed to hear from them.

      The most important data point surrounded their reiteration of the $3.5 million in full-ramp revenues from Sprint. 🔥🔥🔥

      I’ll walk through what that means in tomorrow’s post. 😉

      Liked by 1 person

      1. Aww, that was one thing I actually liked about Ted. Too bad it was done with dishonest statements.

        Like

  8. I thought the fact that he mentioned T-Mobile did not have an iOS offering for the legacy product along with stating that he was confident they could leverage their relationship with Sprint & T-Mobile to expand if merger occurs was significant. Sounded to me like Bill was pretty sure there was no chance the merger would hurt him and very sure it would help.

    Like

      1. First for me. The 3.5 million we already knew and really did not doubt it much at this point. Knowing that he is so confident about expanding this to T-Mobile was big.

        Like

          1. Yes, but if they are not able to expand, how long before they lose what they have?

            Like

  9. If anyone has a good contact with Sprint reps or franchisees, we could get more information on the retail events.

    Thanks for being so inquisitive, Mark. I hope they are thankful for bringing interest to this stock.

    Like

    1. They are. They already expressed a desire to meet with me personally out in LA on June 4.

      In the meantime, I’m happy to be the person with the most knowledge on this company. He’ll be fun to see what happens once it becomes more broadly known. 😊

      Liked by 2 people

      1. I think you did a super job and I could tell they were happy to give you the time because they knew you were bringing attention to their organization.

        Liked by 1 person

  10. Mark,

    Bill dodged your question regarding timelines for the other S&F contracts that was announced last year. Any thoughts on this? It’s odd they’d announce a contract for S&F with major carriers and then go radio silent. I’m interested to know we haven’t heard any follow up on these seemingly large contracts at all (perhaps I missed it). What are your thoughts?

    Like

    1. I’ve discussed this with them before and they want to keep things quiet until they get things rolling. I asked because I have to! 😂

      There are literally dozens of carriers around the world that can use this and the success at Sprint will clearly be a lighthouse for getting the product proliferated around the world.

      It’s a no brainer product for carrier monetization and customer loyalty. WinWin.

      Like

  11. Yea, well done with the questions today Mark! Nothing shocking from their end.. just sort of reiterating, if not strengthening, the data points from your recent research. I live near 2 Sprint stores, and plan on paying them both a visit in the coming weeks to see if they have any input or feedback on S&F. Hopefully by the time you visit with them next month in LA, we’ll begin to see marketing material continue to surface regarding S&F (and the results to show for it with an improving download count).

    Liked by 1 person

      1. A little sizzle and maybe some plans to actually get fundamental investors looking at this again would be nice.

        Like

        1. I’ve spoken to them about this. They are going to significantly ramp up their investor out reach efforts very soon.

          They wanted to make sure that everything was good with Sprint first. Imagine that… Not putting the cart before the horse. 😂😂😂

          Liked by 1 person

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