Could Multiplied Media Be "The Next Big Thing"?

Last week, the DVC SmallTech Newsletter identified ten breakout smallcap technology stocks for YTD 2009. Many of those intersect with the RES Free Thinking Top 5 picks for 2009. Investors in all of those stocks are smiling so far as we enter the last two months of the year. Alas, but there may be one more stock that could make a lot of noise over the next few months.

2009 should be remembered as a breakout year for mobile app vendor Multiplied Media (MMC.V) where the "stars aligned" for the previously perpetually struggling microcap. Founded in 2002 and then taken public via a CPC merger in 2006, Multiplied Media had developed a "big idea" in the form of Location-Based Services (LBS) for mobile devices, but had access to limited infrastructure on which to deploy local search services. It chose what was available at the time, which was the Instant Messaging (IM) platform. Unfortunately, IM failed to gain widespread adoption as a platform for LBS and Multiplied Media had to reset its direction while suffering as a pre-revenue venture with limited resources, dwindling cash, and a restless investor base. By the time it had deployed its Poynt application on the RIM OS in June 2008, the future looked bleak despite the accomplishment and the as-of-yet realized potential of the application. Initially, downloads of Poynt were modest, measuring in the dozens, maybe in the hundreds per week.

It was not until the unanticipated and overwhelmingly successful launch of the iPhone App Store in July 2008 that events started aligning that could earn Multiplied Media "the next big thing" moniker this quarter. With the initial success and the potential competitive threat to RIM caused by the the iPhone App Store, RIM accelerated its mobile consumer applications strategies. First, it began by creating and publicizing the Blackberry Developer Challenge to identify and publicize the best consumer applications developed for RIM, and then it deployed Blackberry App World in March of 2009 as a direct response to Apple's iPhone App Store launched nine months earlier.

In November 2008, Poynt won the Grand Prize in the Blackberry Developer Challenge and was soon featured on Blackberry's mobile site ahead the App World launch.See this earlier blog post. Downloads of the application began to build, then moving into the thousands per month range and by the time App World was launched in April 2009, Poynt had been downloaded by approximately 100,000 consumers. Not long after, the Poynt application was named GSMA Most Innovative Consumer Application in the World.

In time for the App World launch, there were few free consumer RIM applications available for download in App World (cue the chirping crickets) and Poynt benefited from being a multiple award-winning application (big fish) that was only available on the RIM platform (little pond). Due to the quality of the application, it has gone "word-of-mouth" viral among users, helping to drive adoption. Since April, there have been 1.2 million downloads of the application by RIM users - adoption truly looks like a "hockey stick" and momentum continues as Management reports that the install base is growing at a sustained rate of 1% per day. More importantly for investors, people are using the application. As at the time of this post, we estimate that Poynt is transacting between 200,000 and 300,000 individual queries per day and users are currently averaging 10 queries per month. Entering November, user activity infers that there could be between 6 million and 9 million queries executed via the Poynt application this month alone. Considering that the restaurant service has only been available since the beginning of September, it is anticipated that queries per user should accelerate. Revenue potential is benefiting from two intersecting growth vectors. Individual usage is climbing, while the number users is going parabolic.

The near-term future growth of the Poynt application looks even brighter as Multiplied Media is busy porting the application to the iPhone and Android devices. We anticipate that a production version will be available for the iPhone App Store by early December and for the Android OS soon after that. Even within the crowded App Store, the Poynt solution should do well. As a top 10 RIM download and multiple award-winning application, its pedigree should garner a significant lift in downloads via iPhone, and then again with Android. It is important to put the Poynt application into the context of the App Store environment. As of today, AAPL announced that it had reached the 2 billion download mark, only five months after exceeding 1 billion downloads. There are 85,000 applications already developed for the iPhone and 50 million iPhone and iTouch users have downloaded on average 20 applications, most of which are games. But here is the rub. The average app is downloaded 2300 times and only 20% of those apps are ever used after initial download. On the other hand, with 10 queries per month per user, Poynt demonstrates some real stickiness so far. To put Poynt into further context, AAPL announced that the Pizza Hut app reached 1 million downloads last week, and today it was leaked that GoogleTalk has 1.4 million users. With approximately 1.3 million downloads and growing, Poynt is not an insignificant mobile application, which should be noticed by iPhone users when it is made available.

Until this summer, Poynt was only available to North American mobile subscribers. In June 2009, the Company announced that it had entered the U.K market, and it plans to rollout to several additional EU markets during 2010. The increased geographic distribution, combined with the multiple OS ports should help to re-enforce its accelerating market build.

From a revenue generating perspective, Multiplied Media has yet to turn on the taps for local LBS-based advertising, which could be launched sometime during H1, 2010. Ahead of this, the Company announced in June that it intends to acquire Toronto-based Unomobi, a privately-held mobile application developer that retains significant Intellectual Property (IP) related to both mobile LBS advertising, and SMS-to-Email solutions. If the transaction closes in Q4 as anticipated, then MMC will be well-positioned to fairly quickly open up a location-based local advertising revenue stream with intellectual property protection. With IP protection, and good execution Multiplied Media is positioned to be a meaningful player in the niche, which is anticipated to grow from a $0.1 billion market today to a $3 billion market by 2014.

From a financial perspective, the company was able to de-risk its precarious balance sheet by raising $3.0 million via an equity raise in announced August 6 2009, which should be an adequate amount to execute its business plan to cash-flow break-even. The Unomobi acquisition is expected to be an all-share transaction, which should preserve the balance sheet for growth.

As of June 30th, 2009, Multiplied Media was still a pre-revenue company. It reported quarterly revenue of $0.1 million and a loss of $0.6 million. A vast majority of the recent ramp in downloads and user activity was not included in the results. The revenue model employed by Multiplied Media is similar to that of RES Free Thinking Top 5 Pick Cyberplex (CX.TO), which is a performance-based revenue-share model. Multiplied Media gets paid when a user reserves a table, buys a movie ticket, or searches for a local business. Cyberplex is demonstrating both high revenue growth and earnings leverage with a similar model, which infers that Multiplied Media could possibly demonstrate similar traits going forward as it rolls the services out worldwide.

Bottom Line: The Poynt application is currently demonstrating significant ramp measured by both downloads and, more importantly, usage. Even as a single platform application, it should rank among some of the most downloaded applications over the past five months and should reach approximately 2 million downloads by the end of the year on the RIM platform alone. As the company ports the application to iPhone, and Android, downloads should accelerate. Adding to the potential for accelerated downloads, MMC is entering multiple local EU markets throughout 2010. As long as user activity continues, the company could be transacting over 10 million queries per month by the end of the year. Finally, with the anticipated close of the Unomobi acquisition and subsequent launch of profile-centric, location-based advertising, Multiplied Media may be prepared to open a potentially vast new revenue stream by Q1 2010 where it maintains potentially significant IP benefit.

Without a profitable operating history, the stock should be considered speculative. However, the recent shoring up of the balance sheet removes some risk for investors that are interested in benefiting from the emergence of the mobile Internet.

Disclosure: I own shares of MMC.V

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