Post by
KBizz1 on Aug 21, 2020 11:46am
mCloud Value Proposition Post-COVID-19
Started writing this and it kept getting longer...want to say up front that I am not paid to write this, I do not own a significant amount of mCloud stock - this is more of a hobby for me. I am, however, bullish on this stock. Sometimes I find sharing my thoughts helps clear my head. I hope this helps you as well.
What makes me excited:
I have been watching this stock for a while now and looking for a good AI play to round out my technology portfolio (small cap). Currently, it is trading at historic lows and consensus ratings are all strong buys, revenues are coming along (no surprize in 2Q earnings due to COVID S/D). The market cap of $60ish million seems very low (undervalued)...rule of thumb per C.Schutz was 500k connected assets = $1B company (she should know, she's the CFO!)...so by this logic, 50k connected assets should be worth $100M company = mCloud is currently a pretty deep discount.
I work in the O&G industry and pre-COVID19, I would have said that this stock has huge potential in a connected and energy-driven society. Heavy industry is energy intense - there is no way around that; having the ability to monitor many aspects of many assets and make changes on the fly to optimize energy makes our operators' jobs easier and helps our OPEX budgets.
Post COVID19 is a very different world. For the first time in the history of the site that I work at, we successfully completed a major maintenance turnaround and startup without having our technical experts step foot on the site (something we would have thought impossible even 12 months ago). We spent a lot of time on the phone and on FaceTime (which was definitely not seamless) but we were able to achieve success remotely. According to the mCloud website, this is what they are all about with AssetCare. Essentially, seamless virtual technical and engineering support. This fit-for-purpose service is huge for large manufacturers as we all have huge T&E budgets that will essentially vanish and add to the bottom line. I have not yet commented on the 3D-twin technology - ill save this for another post.
What makes me iffy:
The subscription based business model is interesting: pay nothing up front and the subscription cost is guaranteed to be less than what you save. Lots of other companies have similar models (check out Convergent). The good part is that there is no upfront cost and presumably, the savings are split between mCloud and the customer. The trouble is that it sounds too good to be true and many companies (especially traditional ones) will believe that it is just that: too good to be true! (I don't have a better recommendation, just stating).
2Q Revenues were pretty low. When Covid-19 hit where I work, we essentially reduced our onsite trades workforce by 80%!! If you didn't need to be there, you got sent home. The nature of mCloud's service requires them to be onsite to roll out the technology but companies essentially said: "we have lived without this for many years, send them home and we will reassess in 3 months". For this reason, I would show mCloud a bit of grace on their earnings: 2Q20 was a write-off for many emerging companies. Investors will need to keep a close eye on the earnings growth in future quarters with connected assets being the proxy for consistent growth.
As with any small cap company, there is going to be lots of volatility in the share price. I am not so naive to think that some readers will not agree with me because they have different investing strategies. Overall, I think there is significant upside to this company as more and more assets become connected and as integration of AI into asset management becomes the standard amung successful companies.
If you have read this far, thank you and I am interested in what others think.
All this IMHO, cheers