note: this stock is only listed in Canada, ticker = UI.V. Amounts mentioned in this article represent Canadian dollars.
I found a company that could be the smallest viable business listed on the Toronto Exchanges: Urbanimmersive Technologies. Stock price is a mere 3 cents, market cap a tiny $800k. Because no one has ever written up this company, I decided to take a closer look and found out there’s actually a pretty interesting turn-around story unfolding here. If things pan out, we could be looking at a potential 10X return from current levels.
About
Urbanimmersive develops software for the real estate sector. They want to bring real estate marketing to a whole new level. If you are looking for a house, all you see on a real estate broker site is a dull text and a few photo’s. According to Urbanimmersive, it’s about time for a serious upgrade. Think ‘immersive’ online 3D tours, more interaction, etc. They are currently near full commercialisation of 2 online platforms.
Earlier on though, management was going after a flawed business model. In essence, production adoption of their so-called 3D Immersive Tours was too low and expenses were too high. Investors were heading for the exit, causing the stock price to crater from 75 cents to 3 cents. A bankruptcy was looming. To save the company, management decided to get rid off the old business model and implement a new one. Cash-wise, they were on a few private placements themselves and drastically slashed expenses.
Their new products
The first platform, Urbanimmersive.com, targets consumers. It’s an editorial content aggregator that comes from the company’s clients and collaborators. This
press release explains more. In short, rather than the previously flawed revenue model of directly selling 3D tours, revenue should now be derived from online ads. The more online traffic, the more revenue. The platform is currently only in French (Quebec), an English version will be live soon.
The second product is an e-marketplace that enables real estate brokers to search, find, compare, order and pay visual contents online from providers that specialize in real estate. If a deal takes place (for example, a broker pays for photo’s offered by a provider), Urbanimmersive takes a 20% cut. This may not be much from a single deal level perspective, but the purpose is to become the nr1 e-marketplace so thousands of deals will take place….adding up to large revenue streams.
The first platform is set up, traffic is increasing and small dollar amounts start to trickle in. Q2 revenue was about $150k. The second platform is to be launched early 2016.
Partnerships
A good reason why management decided not to pull the plug in 2014 was that they are well-connected in the real estate space. To prove this point, they managed to partner up with large players in the market.
Last February, they signed agreements for the integration of its immersive blog platform with the Association of Professional Construction and Housing of Quebec and with RE/MAX Quebec, one of the largest real estate websites in Canada in terms of traffic including all industries combined. For more details go read this
press release and this
one.
In August, they struck a strategic partnership agreement with Centris.ca, a large real estate portal connected with 13000 real estate brokers. Urbanimmersive will provide its online marketplace platform and Centris will take over its commercialization. This
press release tells more.
Keep in mind that Urbanimmersive so far only operates in Quebec. When they have shown to be capable of making money in this provence, they can expand their business into other provinces in Canada, and perhaps into the US. More importantly, Urbanimmersive has the
first-mover advantage. No other company at this point does what Urbanimmersive is doing. They could copy their technology (we aren’t talking about rocket science here), but again, Urbanimmersive has the connections, the agreements in place and soon widespread brand recognition. Who comes first matters in real estate.
My call with the CEO
I recently had the opportunity to have an hour long conversation with the CEO. Here’s a recap:
Ø The CEO acknowledged the mistakes made in the past. Many lessons have been learned.
Ø He is very upbeat about the future. Especially the partnerships validate their technology big time. In his words, this is a very exciting turn-around.
Ø Management owns most of the shares. He personally put his own money in the company during the latest private placements.
Ø He is very willling to personally participate in future financings, if necessary.
Ø He plans to organize a few road-shows to spread the word.
Ø He could relate to micro-cap investors because he is one himself J
Balance sheet
Per end of June, current assets was $400k, current liabilities about the same, long-term debt $260k and plant & property equipment $240k. Assets and liabilities pretty much level eachother out. Last month, they did a $100k private placement, financed by insiders. Cash burn is a moderate $50k per month, but I expect this to increase a little bit the moment of full commercialisation is near. Therefore, I do expect a new pp coming up. But because the stock price is below 5 cents, the pp will probably be priced at 5 cents (just like last time) to be compliant with the exchange regulations. Also, because the market cap is below 1 million, the maximum they can raise is about $200k. The CEO doesn’t prefer debt-based financing.
The company is operating under tight working capital conditions, but I expect them to live through till significant revenue streams trickle in. I do expect 1 or 2 small dilutive financings coming up, but as said they can’t be priced below current stock price.
Share structure
Outstanding are:
· 27 million common shares
· 556k options @$0.71
· No warrants
· A $250k convertible debenture @$0.125 per common share, maturity date November 2019.
What’s the upside here?
I think the upside is a potential 10X. The moment their products hit the market, the company is able to generate real revenue streams. The CEO could not provide a specific guidance but at this point, there’s no real competition, and I don’t expect a competitor to suddenly enter the market. That’s the advantage of a first-mover, capture the whole market. And the online real estate market is big.
For example, RE/MAX is getting millions in page views, presenting huge potential ad revenue for Urbanimmersive. So I agree with the CEO that this appears to be a very exciting turn-around. Current market cap is an incredibly low $800k and the price/sales based on legacy revenue streams is only 1. The valuation of this type of niche software/marketing start-ups typically surpass 5 million. Remember that Urbanimmersive has a low-cost structure, so revenue will fairly quickly directly add up to the bottom line.
Downside risk
The risk here is product adoption. The partnerships do validate their technology, but eventually, the customer is king. The first earnings reports in 2016 will have to prove on what scale revenue is kicking in. If they fail, Urbanimmersive won’t be given a third chance this time around. Trading volume of the stock is very low, so entry and exit is tough. You could call the company and ask if you can participate in a financing. I bought my shares in the open market. Lastly, the real estate market in Canada is red-hot (a bubble?), so some people are saying the enthusiasm has reached irrational levels. This is a macro-risk worth considering.
End note
Urbanimmersive is an completely unknown but exciting turn-around story. They offer innovative scalable solutions for the online real estate business and they have a clear first-mover advantage. With such a low stock price and market cap, I think the risk/reward here is amazing.