If you missed my last live broadcast, be sure to check it out here… and as always, be sure to read my disclosures/disclosures below. Cheers!
As Thanksgiving approaches, investors are starting to take note of the various catalysts that may spur Smith Micro’s (SMSI) share price in the coming days, weeks, and/or months. Here’s a quick run down of what/s being said out there:
Dave Andaarson on Yahoo Finance — One of the key aspects of this most recent offering was the amendment of previous warrants, allowing them to be reclassified as equity. In other words, the company expects the share price to soon rise faster than the assets, leading to huge liability/decrease in equity without this amendment/reclassification. The amendment allows them to increase equity by around $9 million from current liabilities.
In addition, I’m expecting some type of M&A activity to be announced shortly. I’m not sure what yet, but the PR statement of “maximizing flexibility to execute QUICKLY on strategic initiatives” seems to be a tipping of the hand. I’m looking forward to finding out what this means.
There is an outside chance they will be acquired, but I think it’s more likely they will be acquiring a company that will be immediately accretive.
Verdict: Agree on all counts. There were many reasons SMSI did the most recent offering. Prior to the offering, the company turned profitable and already had $8 million of cash on the balance sheet. So, we know they didn’t need cash.
Anyone who had followed my lessons knows that offerings can be bullish or bearish. The most common deliminator is whether the money was needed (bearish) or not (bullish). Those who acted on this lesson were treated to a “risk-free” trade this month:
- Long SMSI: The lack of need classified its recent offering in my book as bullish. Those who bought SMSI on the news have been rewarded with a 10% gain in just two weeks (the NASDAQ collapsed by 8% over the same period).
- Short FUV: I recently predicted that Arcimoto (FUV) would need cash before December. Sure enough, the company announced an offering on Friday that send the stock tumbling more than 30% — a big profit for those who were short. FUV has now fallen 50% in just 2 months.
The best thing about this situation is that buying one and shorting the other effectively insulated investors from a market crash, since one was short and one was long (thus, any market-related movement in one would presumably be offset by a near-equal and opposite move in the other). In other words, it was virtually risk-free.
diogenese19348 on Yahoo Finance:
Google Play November 20th – 6 days
82 new reviews – 13.6 per day
43-five star 11-four star 7-three star 5-two star 16-one star
App Annie rank: 65, high for period was 58, Family Locator 209
Estimated total downloads: 548,500
November estimated downloads: 46,250
Date Crossed 500K downloads: Not Yet
App Annie rank is back up, review rate is up…and still hasn’t crossed the 500K mark. We are now up against that 10% cushion I set, if it doesn’t cross in the coming week then I was overestimating things.
Diogenese has done a great job of tracking Safe & Found downloads with one of several different methodologies. Each one has its flaws, so I can’t put my full endorsement on this work. However, I do believe that he’s close to the mark.
According to my personal methodology, they ended the quarter with over 500,000 total downloads (Google Play + Apple Store). Since then, they’ve been on track to end this quarter with about 200,000 more. That adds up to about 700,000.
Now, from what I’ve heard, somewhere around 70% of downloads are on Google Play which gets us very close to 500,000 Google Play downloads, which will be a publicly known event (Google displays if an app is over 100,000 downloads, 500,000 downloads, etc.). That approaching event is causing some excitement out there, as it may draw new investor attention to the stock (which has already been building on Yahoo and StockTwits).
Dave Andaarson on Yahoo Finance — I’m hearing Sprint has a pilot program rolling out region by region to do a conversion from FL to SF and it should be completed by mid year of 2019.
I’ve also heard this from a different source. The rumor rings true because it triangulates well with information suggesting that SMSI will soon (within days or weeks) release a new version that enables the app to reside on their childrens’ phones without them knowing it. This is expected to catalyze a full-blown sunset / migration of the Location Labs product over to SMSI’s.
The rumor of a rolling conversion program rings true, since this has historically been Sprint’s modus operandi. If the timeline holds true, I estimate that SMSI’s SafePath subscription revenue will rise by upwards of $1.5 million in Q1 and then another $1.5 million in Q2.
That would get SafePath close to $5 million in quarterly recurring revenue, matching the recurring revenue coming from its CommSuite product. By my math, that would produce about $0.15 of EPS (and rising) per quarter. That’s $0.60 annualized for a company with a current (as of Wednesday morning) enterprise value of just $1.60 per share.
That’s a P/E of 2.7.
Given a P/E of 10, the stock would reach $6.50 per share. At a P/E of 20, it would trade at $12.50. I’m not going to speculate on which (if either) it will achieve. That speculation is best-suited for each individual to ponder.
Of course, this is all additive to information I provided via my most recent live broadcast:
* The Spanish version of SafePath is expected to be announced before the end of Q4. This will expand its appeal in Europe and Latin America, where SMSI has told investors it has a robust pipeline of prospects, along with existing customers.
* The IoT (Internet of Things) version of SafePath is also expected to see an announcement before the end of Q4. This will greatly expand its total available market (TAM) and leapfrog most (if not all) of the competition (due to SMSI’s long and independently-validated reputation for world-class IoT expertise).
It will also expand its image among investors to include those who are hot on IoT technologies. With carriers reportedly clamoring to add IoT-location services in 2019 (to protect their businesses from encroachment), SMSI appears poised to serve as the arms dealer to the warring factions.
* SMSI’s first IoT device in expected to be announced in Q1. SMSI management cryptically shared this information on their last earnings call. Adding a device to the mix would add yet another new revenue stream at a time when the revenue from SMSI’s product lines are finally all poised to move in the same direction (yes, “up”).
* A new major SafePath customer is expected to be added anytime between now and the end of Q2. This is widely expected to be T-Mobile. Either way, Sprint is among the smallest major carriers in North America, so any new “major” customer would likely spur a doubling in SafePath TAM (and revenue) in relatively short order.
So, there are many ways for the company to win. In the meantime, the SMSI story is spreading rapidly this month, via sell-side analyst coverage and management’s coast-to-coast investor conference appearance schedule.
The shares have responded by coming to life, with more conferences and news still to come. With a little luck, I’ll be seeing them at the LD Micro conference in two weeks.
If you missed my last live broadcast, be sure to check it out here. Cheers!
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- 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.
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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.
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