CrowdGather Inc. (OTC Markets: CRWG), an Internet company that specializes in monetizing online forums and message boards, may not have the visibility of social media stocks like Yelp Inc. (NASDAQ: YELP) or Facebook, Inc. (NASDAQ: FB), but investors may want to pay closer attention to the stock given its recent move to create an ad exchange and focus on improving its finances.
In our September 11, 2013 article, CrowdGather's Move into Becoming an Ad Exchange Could Unlock Value, we discussed the company's promising transition from a forum operator to an online advertising exchange model similar to Google Inc.'s (NASDAQ: GOOG) AdWords or IAC Interactive Inc.'s (NASDAQ: IACI) Commission Junction network.
In this article, we'll take a look at how one company, interCLICK, Inc., made a similar move into ad exchange business, moving from an OTCBB listed company to a NASDAQ listed company to being acquired by Yahoo Inc. (NASDAQ: YHOO) for $270 million just four years later.
Reverse Merger to Yahoo Acquisition
interCLICK, Inc. is a well-known technology company that operated a leading ad exchange online. Prior to its acquisition by Yahoo in 2011 for $9.00 per share, the company traded on the NASDAQ for several years as one of the leaders in the space. But, few investors realize that the firm actually began on the OTC Bulletin Board ("OTCBB") in the early 2000s.
On August 28, 2007, interCLICK's predecessor acquired Outsiders Entertainment, Inc. - a record label and entertainment management company - in a reverse merger transaction on the OTCBB to form Customer Acquisition Network, Inc. The company then acquired the privately held interCLICK on October 18, 2007 along with a number of other related private companies.
Customer Acquisition Network changed its name to interCLICK, Inc. in June of 2008 and conducted a 1-for-2 reverse split in order to satisfy the NASDAQ's requirement for a $4.00 per share minimum price in October of 2009. Finally, the company up-listed and began trading on the NASDAQ in November of 2009, attracting more mainstream institutional investors.
Just two years later in 2011, Yahoo acquired the company in a deal valued at about $270 million in order to fill a void in its advertising platform and maximize the value of its ad space.
CrowdGather Takes a Similar Route
CrowdGather has taken a very similar route with its own business over the past several years, targeting its own niche market that's underserved. In April of 2008, the company went public through a reverse merger with General Mayhem LLC on the OTCBB and management began acquiring online forums and forum networks to build up its assets and revenues.
In October of 2008, the company filed a patent titled "Systems and Methods of Targeted Advertising" that would lay the basis for its forum advertising technology. Management spent two years developing the technology before launching Adisn® in October of 2012. Unlike other ad exchanges, Adisn® gave advertisers access to vertical interest forum audiences.
According to Zack's Research, these audiences are particularly valuable, because forum users are generally 3.5x more likely to recommend a purchase, 4x more likely to post reviews online, and 3.5x more likely to share new products. Many forums also target very specific niches that can even include specific products, like Nintendo games on Nsider2.com for instance.
With Adisn® launched and gaining traction, CrowdGather's management has been focusing on achieving profitability over the near-term and meeting the NASDAQ's listing requirements. A move up to the NASDAQ from the OTC Markets could dramatically increase its exposure and attract a whole new class of institutional investors, as it did for interCLICK's up-listing.
CrowdGather's Additional Catalysts
CrowdGather has a number of other catalysts that investors should consider, which may further justify taking a position in the stock. For instance, the stock trades with a price-book ratio of just 0.3x that is sharply lower than the industry’s 4.7x ratio and the S&P 500’s 2.4x ratio. The figure also suggests that investors may be able to acquire stock for less than its liquidation value.
The company also counts a number of institutional investors as holders of its stock, which is rare for many companies that trade on the OTC Markets. For example, Manulife Financial Corporation holds nearly six million shares, or 10.25% of the company. CEO Sanjay Sabnani also holds a sizeable stock position with a cost basis of around $0.25 per share, based on past filings.
And finally, Mr. Sabnani's prior experience as an Executive Vice President of Catasys Inc. and President of Venture Catalyst Inc. has helped him in building CrowdGather's operations. With a renewed focus on profitability, the company recently raised a second tranche of $400,000 from newly created Series B Convertible Preferred Stock to support its growth efforts.
Conclusions
CrowdGather represents an attractive investment opportunity that could be headed in the same direction as interCLICK. After putting in the time to develop a comprehensive forum ad server, management is focused on leveraging these assets to improve revenues, while remaining concentrated on reducing expenses and improving bottom-line profitability.
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