Top Picks for 2019: Making MRIN My 2nd Largest Investment

If you missed my last two Live broadcasts, be sure to check it out here (I discussed MRIN in greater depth at the 28 minute mark) and here for the latest one from TODAY (where I discussed MRIN in greater depth at the 15 minute mark)… and as always, be sure to read my disclosures/disclosures below. Cheers!

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Jan 8 Update: Yesterday, a great piece was released from an industry expert, shedding light on the MRIN / GOOG deal. I personally think he’s missing the M&A angle in this agreement, but his ad-related commentary goes beyond anything I’ve discussed to this point. It also suggests that other such deals may (should) be coming for platform vendors. After all, if GOOG is willing to pay, why shouldn’t FB, AMZN, MSFT, YHOO, TWTR, etc?

The best news, in my opinion, is that Marin is one of the only viable players left in the market (following the market shakeout of the past few years)… and it may now make claim to having the most powerful platform in the industry again (with this month’s roll out of MarinOne).

https://www.thedrum.com/opinion/2019/01/07/what-the-marin-google-revenue-sharing-deal-could-mean-brands

 

 

On Christmas Eve, I said:

“Just a quick update… at the end of today’s action, my trading bias became more bullish on a number of stocks and the market in general.

The second part of that is something relatively new.

I’ve been negative / cautious on the market since September. Selling, shorting, and hedging has enabled me to preserve profits and stockpile cash to take advantage if bargains started to appear in the marketplace.

Despite today’s drop, I’ve still had a great couple of weeks and a fantastic year. More importantly, I have a ton of cash and bargains have indeed started to appear in the marketplace :^)

Euphoria/Panic oscillators finally hit “Panic” on Friday. Simultaneously, we’re now hitting major support levels on the charts. As a result, I think we can start trading for a bounce vs. a further decline.

In a volatile market, it’s generally smart to take profits (on longs and shorts) when they come (and then rinse-and-repeat). That should continue, but my portfolio, charts, and cash position all imply that I should be biased toward buying.

Among my favorite names, I did some more work on MRIN and was alerted to an SEC 8-K filing from April 17 that showed that management will get 1.5 years pay + bonus if they sell the company. This added credence to the hypothesis I presented in my recent article and YouTube video. Between this and today’s drop in stock price, I was a buyer this afternoon.

I get the sense that most people are playing the chart and MRIN’s low float. Don’t be those people. It’s cool to make extra $$$ trading the stock, but spend an hour to go through the story, so you know what you’re dealing with. That will enable you to trade and/or invest with the advantage of knowledge. With a volatile stock like this, that advantage can make a big difference.”

 

This has been a great environment for making opportunistic trades. Accordingly, I’ve been working my trading positions more than usual. However, netting it all out, I’ve materially increased my exposure (stock/options) to some of my favorite names, including Smith Micro (SMSI) and Marin Software (MRIN) over the past couple of weeks.

Watching SMSI lately, it appears that its stock has been moving largely based on ETF-related mechanisms. Fundamentally, the company’s performance has been positive and rising. I expect a steady string of good news to come out over the coming weeks, including it’s upcoming Q4 earnings report.

 

Buying MRIN

Meanwhile, Marin has suddenly transformed into an equally fascinating story. I’ve spent the past two weeks communicating with various experts, ranging from ad-industry specialists to investment bankers to traders who are familiar with the stock’s daily action. I’ve also performed a great deal of primary and secondary research into the situation, including discussions with management, a review of MRIN’s financials, ownership structure, and SEC filings.

Having done so, I now feel confident that I understand what’s going on better than almost any non-insider. I just presented my complete findings an hour ago, Live on youTube (the MRIN discussion begins at the 15 minute mark).

As I alluded last time, traders have been playing with MRIN like a slot machine, watching the chart for changes in bull/bear momentum. Personally, I’m always fine with that. I’m all for making trading profits.

However, I make far more money annually by performing professional fundamental assessments to calculate what the stock should really be worth.

Understanding the fundamental story always provides an advantage. In this case, based on the rhetoric in the chat boards, most traders haven’t even read the details of the GOOG deal. As a result, they have no idea what it means for Marin and its cash flow (and therefore, its stock).

In the coming weeks, I believe that more investors will examine the story. Those who do will start to realize that the GOOG deal will likely flip MRIN from a cash burning company to one that is cash flow positive. In fact, the deal actually requires MRIN to become & remain EBITDA positive.

This is a sharp contrast to the inaccuracies being spread by trader bears (who clearly haven’t read the SEC filings or Q3 transcript — every time I challenge one on the subject, they cry “bagholder” and change the subject). Pumps can work both way (pushing stocks undeservedly up or undeservedly down), so be careful whose words you heed.

The chat boards are talking about MRIN’s losses and how they need to raise money. Most of those people haven’t done the math on the GOOG deal (just ask and see what they say!). If they’re simply looking at MRIN’s updated guidance, they’re failing to calculate the impact of guidance on cash flow.

If my belief proves correct, MRIN’s float (just 2.5 million shares by my calculations) could dry up as reality starts to set in. Tax-loss selling season is over and the stock has consolidated its pump-driven rise to $12. As more investors learn how significantly MRIN’s fundamental picture has changed, I believe we can make a fundamentally driven move toward (and possibly beyond) 12 in the near-term.

Interest in the company is certainly building. The number of views for my initial MRIN video keeps growing. It’s now the most-viewed broadcast on my channel since the pott stock video from early October.

From a trading perspective, an influx of new investors could quickly cause the effective float to evaporate, triggering a short squeeze, allowing the bulls to take over again.

Fundamentally, I believe that the GOOG deal now makes MRIN undervalued on virtually any fundamental metric. Its enterprise value has pulled back to just $20 million… but it has $60 million in annual revenues, has invested an average of $25 million into R&D for the past 5+ years, and may now find itself on a $4 million cash flow run rate right now.

A flip to profitability will cause MRIN’s NOLs to become valuable again. Meanwhile, the company is finally rolling out its long-awaited major product upgrade.

This is why I’ve been buying more as the stock falls. I’ve also taken the rare step of adding another MRIN entry to my 1% Portfolio, signifying my increased interest in the stock, relative to most others. In real life, I bought enough MRIN this week to make it my #2 holding, only behind SMSI.

Bottom Line: As far as the stock market goes, I’m still cautious about how 2019 will play out. However, as of Christmas Eve, it was clear that we had gone down too far / too fast. A LOT of bad news had been priced in. Things can certainly get worse, but the consequences have now been lessened. In the process, many stocks have been blindly sold off, creating more valuation disconnects than I’ve seen in years.

As I warned earlier this year, an environment like this isn’t fun for the average investor. However, but its a Godsend for those who take the time to give themselves a leg up on everyone else. As someone who invested in learning how to do professional fundamental research, I couldn’t be happier as we enter the new year.

I plan to stay hedged, by shorting weak companies, Chinese stocks, and the broader market. However, I’m also becoming a big buyer of stocks that have been thrown out with the bathwater.

Happy Holidays & Stay Tuned!

 

If you missed my last two Live broadcasts, be sure to check it out here (I discussed MRIN in greater depth at the 28 minute mark) and here for the latest one from TODAY (where I discussed MRIN in greater depth at the 15 minute mark)… and as always, be sure to read my disclosures/disclosures below. Cheers!

 

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Disclosures / Disclaimers: I am long AAPL, MRIN, and 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.

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30 thoughts on “Top Picks for 2019: Making MRIN My 2nd Largest Investment

  1. I noticed the following review left 1/5/2019 in Google Play Store under the Family Locator app by “Cody Franklin”: “As a customer service representative, I am hear to inform all who are hoping for this app to continue, unfortunately this is not the case. Safe and found will be completely replacing this in the near future.” Interesting.

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          1. I’ve been told by direct sources that the plan is a rolling sunset over the next few months. Once it starts, we’ll see it in the download numbers. They’re already growing nicely / profitably, so the sunset will be a major boost to EPS. 😎

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          2. Agree with the first part; no clue on the second, but they’re going to support virtually any device that makes sense for them. That’s a nice advantage of having all those QuickLink IoT developers.

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          3. lifebearingwilderness, how are you expecting +1.4M in Q4 results? In Q3, they only gained 250k in Safe & Found revenue, and so far AppAnnie’s data show downloads has been at the same level as Q3, which implies revenue would again be around 250k.

            Am I missing something?

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  2. the sunset for SMSI will be a great thing BUT how will they finance the account receivables from Sprint if they continue to pay in 90 days not 30 ie 3m per month in sales needs 6m 4m a month needs 8m in cash.
    we know what the 4m in additional A/R’s cost them last quarter. Mark if your talking to Tim can you ask him the A/R turnover from Sprint and are they paying to terms of the contract.

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    1. DSO would have to expand markedly for that to matter. SMSI isn’t financing product / inventory.
      It’s software. 100% non-issue IMHO.
      Besides, even if it was an issue, they could get a receivables-backed credit line, but again, non-issue IMHO.
      Smart to think about all of these things tho ! 👍🏼😎

      Like

  3. thanks but I have to disagree with non issue 1) bank line is tough unless you show three consecutive quarters of profitability (I am not sure non gap counts) 2) heavy concentration in one company (Sprint).
    I agree they have the margins and there is no inventory but expansion/updates/R&D will take additional payroll not to mention if they co-op advertising. Just don’t want to see another secondary to finance A/R’s

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    1. That’s true regarding your ifs, but none of that is happening. Ads are 100% Sprint’s responsibility per the company/contract and R&D is fully loaded, because they already have QuickLink developers as a sunk cost.

      I simply don’t see a scenario where this is an issue, especially with Commsuite / S&F growing. Don’t take my word for it though. Have a call with CFO Tim. He’s got the bases covered IMHO.

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  4. I think we can both agree that SMSI having 3-4m in cash sitting in its bank vs Sprint’s would be better for the company no if and or buts and that is happening.
    tried talking with Tim months ago about their Chardan no return call

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    1. Of course. Still non issue for me, but respect your right to feel differently. As for Tim, he sometimes requires more than one call and/or email for me to get a response. I’m fine with that too. He’s been a busy boy and reconciled the operating model quite nicely 💯

      Like

  5. Good news keeps streaming in.

    For TPCS, 36 members of the House have signed a letter requesting authorization for 3 additional subs (13 total) vs. the original plan — “The FY2018 National Defense Authorization Act, which is now law, authorized $5.9 billion for Virginia class submarine construction – $698 million more than the president’s budget request. Additionally, the NDAA provided authorization for the Navy to procure up to 13 submarines in the next “block” contract, three more than currently planned.”

    And even that is only half of the ultimate minimum target (+25).

    For SMSI, we’ll see what CES 2019 brings. They will be there this week (Jan 8-11), where vendors typically make announcements for maximum media exposure.

    Liked by 3 people

  6. My apologies for the vulgar reader comment that slipped through the cracks this morning. I usually catch it earlier. 🙄

    I appreciate the support, but it’s always best to ignore the rare individuals that come seeking attention or a belligerent release. 😑

    As nearly all of you know, I’m transparent about my background (see https://markgomesstocks.wordpress.com/2018/01/16/the-journey-begins/).

    I’m well-guided by my compliance attorney (an ex-SEC prosecutor) so all my past (and future) content has been reviewed, settled, and/or contains the proper disclaimers. 💯

    We can’t force folks to read or understand their responsibilities, but that only leads to a wasting of their own time on foolishness. 🤷🏻‍♂️

    Sadly, it happens all the time. No need for me (or anyone else) to waste time with responses, but it does present the opportunity to reiterate that you should always do your own homework and take responsibility for your investments. 🙏🏼

    …and now back to our regularly scheduled program 😊

    Liked by 1 person

  7. Great piece from an industry expert, shedding light on the MRIN / GOOG deal. I personally think he’s missing the M&A angle in this agreement, but his ad-related commentary goes beyond anything I’ve discussed to this point. It also suggests that other such deals may (should) be coming for platform vendors. After all, if GOOG is willing to pay, why shouldn’t FB, AMZN, MSFT, YHOO, TWTR, etc?

    The best news, in my opinion, is that Marin is one of the only viable player left in the market (following the market shakeout of the past few years)… and it may now make claim to having the most powerful platform in the industry again (with this month’s roll out of MarinOne).

    Cheers

    What the Marin-Google revenue sharing deal could mean for brands
    By Dave Atchison-07 January 2019 13:39pm

    The revenue sharing agreement Google recently struck with Marin Software is the first time in Google’s history it’s given money to a platform rather than a publisher. This suggests that the economics of the digital advertising management company are similar to that of a publisher and telling of the profitability opportunity for Google to keep Marin afloat. If it’s more profitable for advertising channels to share revenues with management platforms like Marin than to let them fail, the profit margins must be attractive. As an advertiser, your primary aim is to drive results for the lowest cost. This historic partnership is a significant milestone in the digital advertising industry which brands should take notice of and be asking themselves, “What are the default settings across our ad channels and are they earning us the most efficient advertising spend?”

    Google Offers a Lifeboat

    The deal announced on December 17 with Marin is the first time Google or any of the dominant ad channels (Facebook or Amazon) has agreed to share revenues with a platform, an exchange typically reserved for publishers. MarinOne, the long-awaited SaaS ad management platform from Marin, claims to unify your Google, Facebook, and Amazon advertising efforts as well as optimize your budget allocation across channels. It’s designed to save brands time and money while driving revenues more efficiently, and yet valuable enough for Google to toss out a lifeboat.

    Think about that

    Marin’s revenues have been ailing for some time while its business portfolio had also been steadily declining and their revenues had reached half their 2015 peak. Their stock (MRIN) was barely hovering above their 52-week low of $2, and their significant cash burn in 2018 left them with just $13.4m in unrestricted cash at the end of Q3. Then Google’s revenue sharing deal came in to save the day with original Q4 revenue expectations down almost 35% from last year, with a range of $11.6 to $12.1m and an operating loss of $5.4 to $5.9m. Marin has since adjusted their expectations, now a range of $14.6 to $15.1m in fourth-quarter revenues and an adjusted operating loss of $2.4 to $2.9m. Their stock price quickly surged to $12 within the week and is now hovering around $6 per share. As outlined in the agreement, much of the estimated $3m in revenue payments from Google in Q4 has been earmarked for reinvestment into the development and expansion of Marin’s enterprise tech platform. Another sign of just how essential ad platforms are to the continued growth of advertising channels.

    The revenue sharing agreement is set to expire on September 30, 2021, with the possibility for renewal.

    Who’s Benefitting Who?

    Marin will collect payments from Google during the three-year agreement based on revenue generated through their platform in connection with their clients’ spend on Search Ads appearing on Google and Non-Google Search. While Google continues to dominate in the search engine arena, they’re required to pay for Non-Google Search revenue as well, mainly from Microsoft Bing. In other words, Google is paying Marin a kickback for all revenue-generating search traffic.

    It’s clear how the revenue sharing deal benefits Marin Software and why they’re motivated to partner with Google. To decipher what Google will gain, you have to read between the lines. One assumption is if Marin were to close up shop, their customers would eventually find their way back to Google Ads. But the disruption to Google’s ad revenue would have been significant enough that they chose to profit share with Marin to avoid any interruption to their ad business.

    This agreement is intriguing from a historical viewpoint signaling that we are entering a new stage of how online business is generated and rewarded, but also unique in that Google has a competing product, Google Ad Manager. Even though Google has a conflict of interest in partnering with Marin, the deal still makes financial sense for the search engine giant.

    Who’s Looking Out for You?

    What’s creating such fat profit margins? It’s because Marin’s clients and others using Google Ad Manager are likely not spending their advertising budgets wisely and efficiently.

    Case in point: Google reduced the amount of exact match keyword control by now allowing for similar words to match on exact match keywords instead of strictly the exact match. For example, “flowers online” and “flower online” which are high search volume terms, have surprisingly different conversion rates and therefore deserve different CPCs, yet Google has now removed this feature, in theory, to make it easy for the user, but in reality, Google ultimately benefits.

    Digital advertising is vastly complex with endless variables that must be managed across multiple channels, making it easy to overspend on ads that are underperforming. Because results vary wildly between platforms and brands, ad channels end up controlling an advertiser’s spending instead of the other way around – with you at the helm.

    All companies are driven to maximize profits, and the digital advertising industry is no exception. Which means advertisers shouldn’t assume an ad channel is looking out for them and it’s more important than ever they make sure ad platforms and publishers aren’t inadvertently taking advantaging of them, the advertiser or brand. Since the Marin-Google deal is likely just the tip of the iceberg, they should keep an eye out for similar deals to emerge this year.

    However, they shouldn’t yet panic. Instead, this should be seen by advertisers as another warning to end wasteful digital ad spending and take control of campaigns. However, first, they have to recognize there’s a problem and then they need to stop relying on ad publishers and dig deeper into their ad spending and campaigns. Third, they should take advantage of the tools and services available to help them gain back control and win in digital advertising.

    The biggest mistake they can potentially make is not acting upon yet another warning sign about the big ad publishers. So as 2019 kicks off, advertisers should start executing on their marketing plan but they should remember there’s no better time than now to take a closer look at their digital marketing and make the changes that will positively impact growth and revenue.

    Dave Atchison is the chief executive of New Engen

    Like

    1. Right? 😂 I actually bought more, but I would short it under any circumstance because of the fundamentals (it could announce big news or get a buyout bid without warning, regardless of what the market is doing).

      Like

  8. I am interested in what people think is holding SMSI down? The reviews are still mixed for the Safe and Found product would be my best guess, whereas the legacy product has higher review scores. Since it is a relatively simple product that it replaces, it is hard to understand why SMSI is not able to do the basic location services (accuracy and timing) of notifications as well as the legacy product after all revisions. When Sprint starts selling IOT devices that will matter less than it does now. The reviews point to late notifications, which I am sure is related to battery life, more frequent refreshing of location services is obviously going to take up the battery some, so of course some complain about battery life. They also say that many features can be defeated by their kids by powering their phone off and on. Quite a few of the bad reviews seem to be just not understanding how the program works and what it can do. I don’t have a Sprint account but would be interested if others besides Mark have tried Safe and Found and found it to be fairly reliable? It is hard to believe that Sprint would even be considering sunsetting the Family Locator if Safe and Found were not tested to be a decent substitute in what it does, but the stock price does make me wonder? It is really hard to keep the faith. The one thing we don’t know is what percentage of people that download the product actually keep it, and whether retention is going up as it should with newer revisions that fix existing bugs.

    Like

    1. You’re understanding it right.

      You’re just overestimating the ability for small cap retail investors to make rational investing decisions based on fundamental research.

      Most retail small cap “investors” are just traders that don’t even look at research. So if you’re wondering why the stock isn’t higher, look no further than that. In the short term, it all just comes down to supply and demand of shares.

      This is not a big difference relative to how things were in the past, by the way. As Warren Buffett famously said, in the short term the stock market is a voting station and in the long term, a weighing station.

      I keep teaching this lesson, but even those who have come to the fundamental side (the right side for those who wish to get rich) have trouble learning how to remain patient.

      https://markgomesstocks.wordpress.com/2018/05/14/lose-33-in-9-months-to-make-1000-in-15/

      Liked by 1 person

  9. I see that Smith Micro just announced at 4:05 this afternoon that they have completed there purchase of the Smart Retail Product Suite so maybe this will take the lid off the stock price.

    Like

    1. Likely not but is very good news overall — profits from the product should start rolling in immediately I believe?

      At least it’s positive news that we haven’t heard for awhile now. I think we’ll slowly start to see more news like this in the coming weeks/months.

      Like

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