Finally We Are MovingHi All,
I've been a shareholder in this company for about 7 years. I know, I was way early to the party. I've never actually sold any shares. Until recently, my average cost way around 50 or 60 cents. I have since loaded up the truck in the mid 20s and mid 30s like many others on the board. My overall average cost is now about 33 cents, roughly where it is trading.
I won't lie, when it got down to 8 cents, I was pretty scared, but I've always believed in managements vision, and I'm a fairly long term investor. I tell you this to note that I'm not a pump and dumper, but someone who believes in the story long term.
I talked to Vikas about 2 months ago, as I was thoroughly unimpressed with the questions that were getting asked on the conference calls and I got some really good answers. I can tell you the one part of their business that has surprised me the most and that is Swiftshader. I thought this was just another product they created with little revenue potential, but I have come around on that idea.
I always thought that DMG was the reason to own this stock, but I have become much more interested in the GPG side of the business, for two reasons: 1. Huge margins and 2. Proof of concept of big deals. I believe we are going to continue to see some very large deals get made over the next 18 months.
The DMG part of the business has been a disappointment for us shareholders for the last 3 years. We expected so many deals to be signed in 2012 and there was little to nothing done. Not to fault management, but the providers just didn't see it as a priority. We have now hit the tipping point in signing agreements, but it will take some time to squeeze out the revenue from them. It's taken a while for management to figure out the Free model, but it looks like they now have it down. On the advertising supported part of their business, I think we are looking at 18-24 months before they really figure out how to make some serious revenue from this part of the business. But don't fret, there will be a lot of agreements signed and revenue in aggregate will completely acceptable for a company with a market cap of 25 mil. I'm really excited for the MSO announcements coming up, as the company can make more money faster with these players.
For GPG, this is the really exciting part for me. I was always drawn to Cider and the reason I started investing in the company. They've actually taken this technology and started to use it for non-game purposes, as evidenced by that $1MM sale. This was huge news and I didn't fully realize it until recently. This one deal was with their translation software for non-game purposes. It was a cloud company after all. Vikas has mentioned for some of the really big stuff, there is a road map that takes about 2-3 years to full get in. They obviously have been working on it for a while, but it wasn't until recently (that deal) that they have re-emphasized the importance. A question that needs to get asked, is how long they had been working on that deal. Regardless, the translation technology and Swiftshader can scale up quite quickly and profitably. The margins should be above 90% for large deals, as most of the cost will be amortized.
I agree with many of you, the revenue estimates released in the Global MCI Research Report are a bit soft in my opinion, but in the short term it might be a bit slow. For example, I think were out 18 months from any real meaningful revenue from Samsung, but when it does come, it will be huge. However, any deal with an MSO/cable operator will bring in revenue so much faster.
The next 3-4 years of revenue growth should be in the 50-60% level, assuming they can hit on the GPG business along with signing more deals in the DMG business. We should be looking at an EBITDA multiple of about 20x, that is when the institutions start getting in a bit deeper.
It we can hit revenue of 25MM in 2015 wand 45MM in 2016 with 25% margins, we should be at share prices of $1.13 and 2.04 (on fully diliuted 110MM shares) respectively. I believe we will get to $14-15MM this year and $25MM the following year.
I personally believe the GPG technology would be very interesting to a tech company and at some point it may make sense to seperate the businesses and sell of that business. Of course, we need more of those game changing deals to get there.
So regardless as to where the share price goes in the short term, I believe unless they faulter on signing new deals, especially with MSOs, I'm going to be a shareholder.
This of course is my analysis, but rarely are we able to find a company with so much upside, with limited downside risk. One final thought, a lot of risk is going to be removed as the share price increases and management is able to raise more money to pay down their debt with BEST and they will automatically get more cash due to the exercise of Warrants and Options they have outstanding. Their cash account will automatically grow with an increased share price.
Good luck to all and hope most on this board share my ideas.