On Friday April 30th, at 3:15, I was guest on BNN discussing three mobile ecosystem companies that I initiated official coverage on with Mpartners.
The investment concept is this: mobile operators worldwide are experiencing a data capacity and congestion crisis that is expected to get exponentially worse over the coming five years as web enabled smartphones proliferate the market. Even with significant network capacity upgrades, operators will continue to run up against capacity challenges and quality of service issues. Network optimization solutions will be required to help more efficiently manage how data is used in order to offset the expenses associated with network upgrades. With smartphones using 40 times more data than a typical feature phone, 10 million web enabled smartphones use as much data capacity as 390 million feature phones. According to Cisco, mobile data capacity requirements are forecasted to grow at a parabolic CAGR of 108% over the next four years. At the same time, subscriber ARPU is forecasted to grow at a CAGR of only 10%. As a result, mobile operators will struggle to grow profitably as they support popular smart phone devices like iPhone and Android platforms.
Investors can benefit from this problem by participating in the upside potential of the three software-oriented mobile infrastructure stocks that I mention in the clip. Often complimentary, sometimes competitive, each company plays at a different level within the stack from billing (RKN) to policy (BWC) to network awareness (SVC). Here is the link.
http://watch.bnn.ca/trading-day/april-2010/trading-day-april-30-2010/#clip296311
To return to RES Free Thinking, please click on the back button of the browser window in which the clip plays.
Showing posts with label mobile infrastructure. Show all posts
Showing posts with label mobile infrastructure. Show all posts
2/11/10
RKN:TSX Q1 2010 Results Down Again - Turning a corner or more turbulence to come?
This morning, Redknee reported Q1 2010 results. Revenue was reported at $11.4m, down 17% from Q1 2009 revenue of $14.2m and up by 13.5% sequentially from $10.4 m reported in Q4 2009. Gross margins were reported at 77%, slightly higher than previous year quarter reported at 76%. Actual gross profit was reported at $9.1m, down from $10.8 m reported for Q1 2009.
2/2/10
Mosaid (MSD:TSX): It's Been A Good Month
In the spirit of Chris Bosh being named Eastern Conference Basketball Player of The Week, it seems appropriate to highlight the month enjoyed by Ottawa's technology patent licensing king, Mosaid Technologies.
11/26/09
Redknee (RKN.TO) Surprises With Weak Q4.
In its Q4 and Full-Year press release, the company downplayed its weak Q4 and focused on Full-Year profitability, which was strong.
10/27/09
Bridgewater Systems (BWC.TO) Q3 2009 Preview: Will momentum continue?
Earlier this month, BWC stock peaked at $9.80 per share, more than quadrupling the share price of $2.17 as it entered 2009. It has come off those highs since and it looks like it is now trading in the mid $8 range ahead of its Q3 financial report, which is scheduled to be released at 7:00AM on November 5, 2009. The investor conference call is scheduled for 8:30AM that day, and the call-in numbers are:
1-416-844-3432
1-877-974-0446
After a remarkable run since the beginning of the year, investors may wonder how much upside remains in the stock. As a reminder, performance for H1 2009 was as follows:
1-416-844-3432
1-877-974-0446
After a remarkable run since the beginning of the year, investors may wonder how much upside remains in the stock. As a reminder, performance for H1 2009 was as follows:
9/14/09
Bridgewater Systems (BWC.TO) On A Roll - Announces Major New Contracts
As mobile data usage continues to grow exponentially around the world, Bridgewater Systems' suite of policy and data management solutions should continue to become more popular among carriers as they attempt to meet the increasing demand from consumers and businesses.
On Friday, Bridgewater Systems announced a contract with Verizon (VZ.NYSE) for its Widespan product estimated to be work over $18 million. Most of the revenue should be recognized by H2 2010, but with no impact on 2009 revenue. This should have meaningful impact on FY 2010 revenue and earnings forecasts. Forecasted revenue could increase between 12% and 18% above consensus depending upon the recognition of revenue, while EPS could be ahead of 2010 forecasts by between 80% and 100%. Expect analysts to increase targets substantially, which should continue to impact positively the share price momentum.
On Friday, Bridgewater Systems announced a contract with Verizon (VZ.NYSE) for its Widespan product estimated to be work over $18 million. Most of the revenue should be recognized by H2 2010, but with no impact on 2009 revenue. This should have meaningful impact on FY 2010 revenue and earnings forecasts. Forecasted revenue could increase between 12% and 18% above consensus depending upon the recognition of revenue, while EPS could be ahead of 2010 forecasts by between 80% and 100%. Expect analysts to increase targets substantially, which should continue to impact positively the share price momentum.
8/18/09
Zoompass is destined to succeed: So what is the potential fallout in the Canadian market?
This is a follow-up commentary to a previous post "Enstream: A Mobile Moneris or Dexit Revisited?" published on June 15, 2009. The article was an attempt to contextualize the beta launch of Zoompass within the current Canadian and international mobile billing and payments ecosystem. The fundamental question posed was "Does this venture have a chance to succeed, or is it doomed to fail like so many other attempts in the past?" And if it does succeed, what are the implications for the market?
Two months later, and after spending some time interviewing Enstream management, along with management from other companies within the Canadian mobile ecosystem, I will call an early verdict:
Zoompass is destined to succeed and here is why:
1. The carrier coalition (T.TO, BCE.TO, RCI.TO) funding the Enstream venture is more committed than ever after initial feedback. So far, it has refrained from the typical eye gouging that makes these types of ventures implode early. Most of its competition would come from chronically underfunded start-ups - so it has a definite capital advantage (and apparently patience).
2. The bench strength is deep. Most of the management team and the 35 or so developers iterating through the beta have been poached from companies like Verisign (VRSN.Q) (Mqube), which suggests deep experience in mobile SMS-based billing gateways, and mobile transactions.
3. There is pent-up demand. Canada is behind countries like Kenya in getting mobile micro-payments launched. In a study conducted by Gartner, Inc, it forecasts that 190 million people worldwide will be making mobile payment by 2012, and that the current annual growth rate is 70%. To put this into perspective, as of 2009, there are 250 million smart phones in the market. Recent North American surveys conclude that between 26% and 32% of mobile users would immediately adopt mobile payments if they were offered. These surveys, regardless of variances in methodologies, appear to point to mass adoption potential. The tweetsphere appears to indicate some consumer impatience for access to such services.
4. Target market is trained and willing. Zoompass is targeted at the 18 - 30 age cohort. There is almost 100% intersection among this group of previous experience downloading paid mobile content and applications thanks to iTunes, PayPal, and a myriad of on-portal and off-portal mobile content malls. There is little education required, and mobile micro-payments are a simple extension of what they are already accustomed to doing.
5. A vast majority of the capital risk is willingly borne by the consumer. Unlike previous failed electronic payment solutions, there is little financial risk at the endpoint assumed by the provider or merchants. Consumers have already invested in the wallet for other reasons. As a result, Zoompass can be tweaked relatively efficiently, with limited capital consequence, as it gets feedback from consumers. With limited capital risk, there is more flexibility in the design of potential offerings. More importantly, there is limited scaling friction caused by capital constraints. In this regard Zoompass is more like Twitter, less like Interac.
6. Zoompass is being developed collaboratively with its target market. Unlike many previous attempts at new electronic payment systems, Enstream is fully engaged in a collaborative design process with its potential consumers. In the end, this approach is most likely to result in success because it is not pushed into the market. The consumer is pulling it. Enstream has ripped a page from the US-based handbook of "how to launch a successful digital application". It is being very un-Canadian in its aggressive interaction via social media, ensuring better buy-in from a highly educated, elusive, and often cynical target market.
Where can this go?
Ultimately, Zoompass has its sights set on about 20 million subscribers with a factory installed application that includes active RFID and NFC components. The carriers have a little pull with handset manufacturers, so the ultimate factory install objective is obtainable. As well, Zoompass is not interested just in the cash that resides in your wallet, it is interested in the whole wallet. Think about what is in your wallet right now: Credit cards galore, various gift cards, a coffee card, loyalty cards, a phone card, your license, your health card, maybe a transit pass.
What does this mean to the mobile ecosystem and to Canadian consumers?
First, the Canadian consumer...
1. A potential carrier oligopoly in mobile payments is a risk to consumers. Already, Canadian mobile subscribers pay some of the highest mobile bills in the world due to market distortions caused by the CRTC and to a related lack of competitive choice. The Enstream Joint Venture represents a potential to perpetuate oligopoly risk. The extent of the oligopoly depends upon how successful Enstream is in co-opting the financial services industry into its offerings.
2. A potential meta-oligopoly only perpetuates risk to consumers. Canadian financial institutions could band together as in the past (e.g. Interac) in order to offer an alternative mobile payments solution. Already there are whispers of Big 5 summit meetings on the topic of a competitive offering. Before consumers begin to cheer, this only represents two choices operated by a total of 8 very large institutions. It doesn't necessarily create a fully baked competitive environment that gives consumers adequate choice. As an aside, Canadian financial institutions are simply not wired to build out consumer services iteratively like Enstream is doing, so the chances of success are more limited, which means that consumers could be more likely than not saddled with a mere oligopoly.
3. But what about the new broadband spectrum wireless carriers? The future entry of new carriers such as Globalive (Wind Mobile), Publix Mobile, and DAVE Mobile could present a viable alternative in mobile payments for consumers by creating its own JV/coalition. Possibly. However, these folks have a lot on their plates just to get services launched by 2010. In the meantime, Zoompass could deliver to the Enstream JV an insurmountable lead before new players could respond. Independent developers are mostly ignored by capital markets, so there is not likely to be any effectively funded, meaningful competitive "white knights" appearing out of the woodwork any time soon.
4. RIM to the rescue? New Nortel (RIM) may have a couple of things cooking but probably at an earlier stage of development than Enstream. It could leverage its balance sheet to acquire (similar to Nokia buying Obopay) but it has been mostly dabbling. As stated in June, RIM is likely to try to leverage its new PayPal relationship before it hunts for another Obopay. Even still, what if you are an iPhone user?
In the not-to-distant future, it is feasible for someone at the Canadian Competition Bureau to have another file dropped on their desk. Ironically, the near certain success of Zoompass may create some market uncertainty for investors as consumer protection raises the specter of government intervention.
Now the Canadian mobile ecosystem...
1. There are probably some small exploitable market niches around the edges of the possible Zoompass juggernaut. Enstream is not targeting what I would coin the "Money Mart Cohort". These are people with limited traditional banking access, and no credit. A vast majority are the working poor and recent immigrants who tend to be "cash-oriented". Depending on sources, this group represents between 10% and 12% of the population depending upon the year. For over a decade now, these people have already been engaged in card-based micro-payments by buying billions of long-distance minutes and pre-paid mobile time. The carriers have been making hay with this group for a while. An independent mobile payments offering could sprout up for these people. However, the size of the market limits the amount of potential competitors in this niche. And there will be a lot of microcaps scrapping over this business. Even with considerable consolidation, there are likely to be a couple of winners and a lot of losers in this market.
Other interesting potential mobile payment market niches could include payroll, government stipend, and international remittance. The common thread among these solutions, is that they are not necessarily micro-payments, and they do not have person-2-person elements to them.
2. Start-ups could take their cookies and simply leave the room. Enstream would certainly be happy. Micro-payments are a worldwide phenomenon with much larger opportunities outside of Canada. Enstream management states that it is (for now) a Canadian-only venture. Vendors with current international footprint may choose to apply their limited capital resources to exploit those markets more aggressively. Investor may also see Canadian companies with good IP and weak balance sheets snapped up by foreign interests over the next few quarters. This is a good thing for shareholder of such companies.
3. Complimentary and indirect competitors may find opportunities to hitch their fortunes to Zoompass. This could be a good way for a diverse group of vendors to maximize shareholder value. Enstream has been fairly vocal that it would like Zoompass to be an open platform for other developers and that it has (as alluded to earlier in this post) designs on getting a piece of the entire wallet. This is the exciting stuff for the mobile ecosystem based on feedback that I am receiving. However, I am skeptical that it will truly be an open development platform. Is Apple's Safari really an open platform? Enstream will pick its partners regardless of its current public postering. Notwithstanding, opportunities abound for partnerships in gift and re-loadable cards, loyalty management, EMR/health services, government services, RFID, POS, and NFC. There are potential technical and infrastructure partnerships related to billing systems, and provisioning along with cloud services related to transaction processing, ecommerce, identity and security. Although most of these solutions are likely to be provided by large cap vendors, there is likely room for Canadian small-cap, micro-caps and start-ups to participate (and a spot for investors to potentially benefit from considerable gains). As the solution matures, there are likely to be as of yet unimagined consumer applications that can be developed for commercial benefit.
In summary
Zoompass is here to stay. There is demand for mobile payments, success elsewhere in the world is well documented, and Zoompass appears to be destined for a successful launch in 2010. It may experience some bumps along the way, but it will likely be a market force within the next 24 months.
With its success will come uncertainty related to consumer choice, even if there is a direct competitive response from the financial services industry. Will there be a consumer outcry that compels government regulators to force the Enstream JV to open its platform to future competitors? If so, the ultimate benefit to shareholders of the main JV participants could be muted.
Investors should expect a lot of angst among the myriad of smaller under-capitalized players that have been developing solutions in this space so far. How does a management team respond to this competitive cluster bomb? Those that underestimate or ignore the potential for Zoompass do so at their peril. Shareholders should expect, and even encourage, increased M&A activity and strategic recalibration. Some companies may even attract new investment.
The impending Zoompass launch, and its likely success, should make thing very interesting for some time in the Canadian mobile market. Some investors could make some nice returns, others not so much. It will all depend on the reaction of management teams and subsequent execution. As always.
Please feel free to comment.
Disclosure: I do not own shares of any of the companies mentioned in this post.
Two months later, and after spending some time interviewing Enstream management, along with management from other companies within the Canadian mobile ecosystem, I will call an early verdict:
Zoompass is destined to succeed and here is why:
1. The carrier coalition (T.TO, BCE.TO, RCI.TO) funding the Enstream venture is more committed than ever after initial feedback. So far, it has refrained from the typical eye gouging that makes these types of ventures implode early. Most of its competition would come from chronically underfunded start-ups - so it has a definite capital advantage (and apparently patience).
2. The bench strength is deep. Most of the management team and the 35 or so developers iterating through the beta have been poached from companies like Verisign (VRSN.Q) (Mqube), which suggests deep experience in mobile SMS-based billing gateways, and mobile transactions.
3. There is pent-up demand. Canada is behind countries like Kenya in getting mobile micro-payments launched. In a study conducted by Gartner, Inc, it forecasts that 190 million people worldwide will be making mobile payment by 2012, and that the current annual growth rate is 70%. To put this into perspective, as of 2009, there are 250 million smart phones in the market. Recent North American surveys conclude that between 26% and 32% of mobile users would immediately adopt mobile payments if they were offered. These surveys, regardless of variances in methodologies, appear to point to mass adoption potential. The tweetsphere appears to indicate some consumer impatience for access to such services.
4. Target market is trained and willing. Zoompass is targeted at the 18 - 30 age cohort. There is almost 100% intersection among this group of previous experience downloading paid mobile content and applications thanks to iTunes, PayPal, and a myriad of on-portal and off-portal mobile content malls. There is little education required, and mobile micro-payments are a simple extension of what they are already accustomed to doing.
5. A vast majority of the capital risk is willingly borne by the consumer. Unlike previous failed electronic payment solutions, there is little financial risk at the endpoint assumed by the provider or merchants. Consumers have already invested in the wallet for other reasons. As a result, Zoompass can be tweaked relatively efficiently, with limited capital consequence, as it gets feedback from consumers. With limited capital risk, there is more flexibility in the design of potential offerings. More importantly, there is limited scaling friction caused by capital constraints. In this regard Zoompass is more like Twitter, less like Interac.
6. Zoompass is being developed collaboratively with its target market. Unlike many previous attempts at new electronic payment systems, Enstream is fully engaged in a collaborative design process with its potential consumers. In the end, this approach is most likely to result in success because it is not pushed into the market. The consumer is pulling it. Enstream has ripped a page from the US-based handbook of "how to launch a successful digital application". It is being very un-Canadian in its aggressive interaction via social media, ensuring better buy-in from a highly educated, elusive, and often cynical target market.
Where can this go?
Ultimately, Zoompass has its sights set on about 20 million subscribers with a factory installed application that includes active RFID and NFC components. The carriers have a little pull with handset manufacturers, so the ultimate factory install objective is obtainable. As well, Zoompass is not interested just in the cash that resides in your wallet, it is interested in the whole wallet. Think about what is in your wallet right now: Credit cards galore, various gift cards, a coffee card, loyalty cards, a phone card, your license, your health card, maybe a transit pass.
What does this mean to the mobile ecosystem and to Canadian consumers?
First, the Canadian consumer...
1. A potential carrier oligopoly in mobile payments is a risk to consumers. Already, Canadian mobile subscribers pay some of the highest mobile bills in the world due to market distortions caused by the CRTC and to a related lack of competitive choice. The Enstream Joint Venture represents a potential to perpetuate oligopoly risk. The extent of the oligopoly depends upon how successful Enstream is in co-opting the financial services industry into its offerings.
2. A potential meta-oligopoly only perpetuates risk to consumers. Canadian financial institutions could band together as in the past (e.g. Interac) in order to offer an alternative mobile payments solution. Already there are whispers of Big 5 summit meetings on the topic of a competitive offering. Before consumers begin to cheer, this only represents two choices operated by a total of 8 very large institutions. It doesn't necessarily create a fully baked competitive environment that gives consumers adequate choice. As an aside, Canadian financial institutions are simply not wired to build out consumer services iteratively like Enstream is doing, so the chances of success are more limited, which means that consumers could be more likely than not saddled with a mere oligopoly.
3. But what about the new broadband spectrum wireless carriers? The future entry of new carriers such as Globalive (Wind Mobile), Publix Mobile, and DAVE Mobile could present a viable alternative in mobile payments for consumers by creating its own JV/coalition. Possibly. However, these folks have a lot on their plates just to get services launched by 2010. In the meantime, Zoompass could deliver to the Enstream JV an insurmountable lead before new players could respond. Independent developers are mostly ignored by capital markets, so there is not likely to be any effectively funded, meaningful competitive "white knights" appearing out of the woodwork any time soon.
4. RIM to the rescue? New Nortel (RIM) may have a couple of things cooking but probably at an earlier stage of development than Enstream. It could leverage its balance sheet to acquire (similar to Nokia buying Obopay) but it has been mostly dabbling. As stated in June, RIM is likely to try to leverage its new PayPal relationship before it hunts for another Obopay. Even still, what if you are an iPhone user?
In the not-to-distant future, it is feasible for someone at the Canadian Competition Bureau to have another file dropped on their desk. Ironically, the near certain success of Zoompass may create some market uncertainty for investors as consumer protection raises the specter of government intervention.
Now the Canadian mobile ecosystem...
1. There are probably some small exploitable market niches around the edges of the possible Zoompass juggernaut. Enstream is not targeting what I would coin the "Money Mart Cohort". These are people with limited traditional banking access, and no credit. A vast majority are the working poor and recent immigrants who tend to be "cash-oriented". Depending on sources, this group represents between 10% and 12% of the population depending upon the year. For over a decade now, these people have already been engaged in card-based micro-payments by buying billions of long-distance minutes and pre-paid mobile time. The carriers have been making hay with this group for a while. An independent mobile payments offering could sprout up for these people. However, the size of the market limits the amount of potential competitors in this niche. And there will be a lot of microcaps scrapping over this business. Even with considerable consolidation, there are likely to be a couple of winners and a lot of losers in this market.
Other interesting potential mobile payment market niches could include payroll, government stipend, and international remittance. The common thread among these solutions, is that they are not necessarily micro-payments, and they do not have person-2-person elements to them.
2. Start-ups could take their cookies and simply leave the room. Enstream would certainly be happy. Micro-payments are a worldwide phenomenon with much larger opportunities outside of Canada. Enstream management states that it is (for now) a Canadian-only venture. Vendors with current international footprint may choose to apply their limited capital resources to exploit those markets more aggressively. Investor may also see Canadian companies with good IP and weak balance sheets snapped up by foreign interests over the next few quarters. This is a good thing for shareholder of such companies.
3. Complimentary and indirect competitors may find opportunities to hitch their fortunes to Zoompass. This could be a good way for a diverse group of vendors to maximize shareholder value. Enstream has been fairly vocal that it would like Zoompass to be an open platform for other developers and that it has (as alluded to earlier in this post) designs on getting a piece of the entire wallet. This is the exciting stuff for the mobile ecosystem based on feedback that I am receiving. However, I am skeptical that it will truly be an open development platform. Is Apple's Safari really an open platform? Enstream will pick its partners regardless of its current public postering. Notwithstanding, opportunities abound for partnerships in gift and re-loadable cards, loyalty management, EMR/health services, government services, RFID, POS, and NFC. There are potential technical and infrastructure partnerships related to billing systems, and provisioning along with cloud services related to transaction processing, ecommerce, identity and security. Although most of these solutions are likely to be provided by large cap vendors, there is likely room for Canadian small-cap, micro-caps and start-ups to participate (and a spot for investors to potentially benefit from considerable gains). As the solution matures, there are likely to be as of yet unimagined consumer applications that can be developed for commercial benefit.
In summary
Zoompass is here to stay. There is demand for mobile payments, success elsewhere in the world is well documented, and Zoompass appears to be destined for a successful launch in 2010. It may experience some bumps along the way, but it will likely be a market force within the next 24 months.
With its success will come uncertainty related to consumer choice, even if there is a direct competitive response from the financial services industry. Will there be a consumer outcry that compels government regulators to force the Enstream JV to open its platform to future competitors? If so, the ultimate benefit to shareholders of the main JV participants could be muted.
Investors should expect a lot of angst among the myriad of smaller under-capitalized players that have been developing solutions in this space so far. How does a management team respond to this competitive cluster bomb? Those that underestimate or ignore the potential for Zoompass do so at their peril. Shareholders should expect, and even encourage, increased M&A activity and strategic recalibration. Some companies may even attract new investment.
The impending Zoompass launch, and its likely success, should make thing very interesting for some time in the Canadian mobile market. Some investors could make some nice returns, others not so much. It will all depend on the reaction of management teams and subsequent execution. As always.
Please feel free to comment.
Disclosure: I do not own shares of any of the companies mentioned in this post.
7/30/09
Bridgewater Systems exceeds expectations, increases guidance
BWC share should be positively impacted by news, and analysts should continue to raise forecasts.
BWC.TO reported Q2 2009 revenue of of $16.1 million, a 37% year over year increase in sales from $11.8 million. Gross margins were 74% for the quarter. Earnings reported for Q2 were $4.1 million or $0.17 EPS versus $1.3 million or $0.05 EPS for the previous year quarter, a 215% increase.
The Company now reports $57.6 million of cash on its balance sheet.
Management has increased full year guidance to between $58 million and $64 million with full year gross margin expected at 70%, which implies that gross margins may decline in the second half. Encapsulated within full-year guidance is $23 million in contracted backlog for H2, and approximately $7 million in upsell and new client revenue.
H1 revenue is reported at $30.2 million with $0.29 EPS. The mid-point of guidance infers that it expects to generate an identical back half with slightly lower potential EPS.
On the conference call management stated that RFP interest for all of its products is increasing during H2 2009, that it is on track to sign a Tier 1 GSM client.
Management confirmed that the explosion of smart phones, and the requisite application stores associated with them worldwide is providing exceptional opportunity for BWC as carriers/operators attempt to manage the scale and complexity of their growing data channels.
With only 5.4% smartphone penetration within the total world mobile subscriber base, there remains a lot of opportunity for BWC.
Analysts have been increasing forecasts and targets for the past few days, and after today's financial results and conference call, investors should expect analysts to continue to increase forecasts and targets.
As mentioned in earlier posts, BWC is among a handful of "connectivity" stocks that should perform ahead of the general market as mobile data networks expand.
Also included in that group are: RIM, CGI, BWC, DWI, RCM, WIN, RKN, SVC, PIX, and TUN
Disclosure: I own BWC stock, but do not own any of the other stock mentioned in this post.
BWC.TO reported Q2 2009 revenue of of $16.1 million, a 37% year over year increase in sales from $11.8 million. Gross margins were 74% for the quarter. Earnings reported for Q2 were $4.1 million or $0.17 EPS versus $1.3 million or $0.05 EPS for the previous year quarter, a 215% increase.
The Company now reports $57.6 million of cash on its balance sheet.
Management has increased full year guidance to between $58 million and $64 million with full year gross margin expected at 70%, which implies that gross margins may decline in the second half. Encapsulated within full-year guidance is $23 million in contracted backlog for H2, and approximately $7 million in upsell and new client revenue.
H1 revenue is reported at $30.2 million with $0.29 EPS. The mid-point of guidance infers that it expects to generate an identical back half with slightly lower potential EPS.
On the conference call management stated that RFP interest for all of its products is increasing during H2 2009, that it is on track to sign a Tier 1 GSM client.
Management confirmed that the explosion of smart phones, and the requisite application stores associated with them worldwide is providing exceptional opportunity for BWC as carriers/operators attempt to manage the scale and complexity of their growing data channels.
With only 5.4% smartphone penetration within the total world mobile subscriber base, there remains a lot of opportunity for BWC.
Analysts have been increasing forecasts and targets for the past few days, and after today's financial results and conference call, investors should expect analysts to continue to increase forecasts and targets.
As mentioned in earlier posts, BWC is among a handful of "connectivity" stocks that should perform ahead of the general market as mobile data networks expand.
Also included in that group are: RIM, CGI, BWC, DWI, RCM, WIN, RKN, SVC, PIX, and TUN
Disclosure: I own BWC stock, but do not own any of the other stock mentioned in this post.
7/7/09
Redknee (RKN.TO) continues to show momentum.
Yesterday, Redknee announced its second major contract in two days, and the third in less than a month. See the post from June 6th.
The trend for Redknee continues to be international with the June contract located in the Middle East, Monday's multi-million dollar contract with a Tier1 operator in Europe, and then yesterday's announced contract in Pac-Asia. Investors should expect this trend to continue as operators in these regions look for mobile infrastructure and middleware solutions to support significant growing demand for mobile data services. In many parts of EMEA and Pac-Asia, wireless devices will be the dominant access point to the internet and related data. As operators expand billing to accomodate, Redknee should be among the vendors to benefit, and management at RKN appears to be executing well to capture market share.
Mobile infrastructure should continue to be a significant area of growth over the coming years as operators worldwide attempt to manage some of the emerging complexities associated with billing, provisioning, and capacity for 3.2 billion subscribers worldwide.
With that in mind, there are a handful of small-cap public Canadian companies to watch including (in alphabetical order):
Bridgewater Systems (BWC.TO)
Dragonwave (DWI.TO)
Redknee (RKN.TO)
Wi-Lan (WIN.TO)
Disclosure: I own shares of BWC. I do not own shares of DWI, RKN, or WIN.
The trend for Redknee continues to be international with the June contract located in the Middle East, Monday's multi-million dollar contract with a Tier1 operator in Europe, and then yesterday's announced contract in Pac-Asia. Investors should expect this trend to continue as operators in these regions look for mobile infrastructure and middleware solutions to support significant growing demand for mobile data services. In many parts of EMEA and Pac-Asia, wireless devices will be the dominant access point to the internet and related data. As operators expand billing to accomodate, Redknee should be among the vendors to benefit, and management at RKN appears to be executing well to capture market share.
Mobile infrastructure should continue to be a significant area of growth over the coming years as operators worldwide attempt to manage some of the emerging complexities associated with billing, provisioning, and capacity for 3.2 billion subscribers worldwide.
With that in mind, there are a handful of small-cap public Canadian companies to watch including (in alphabetical order):
Bridgewater Systems (BWC.TO)
Dragonwave (DWI.TO)
Redknee (RKN.TO)
Wi-Lan (WIN.TO)
Disclosure: I own shares of BWC. I do not own shares of DWI, RKN, or WIN.
6/9/09
Redknee (RKN.TO) signs meaningful contract in Middle East.
Today, Redknee announced that it has won a triple-play converged billing contract in the EMEA (Europe Middle East & Africa) region. More specifically and according to the company, the contract is an upsell to a current client with major operations throughout the Middle East.
Although the client and specific terms of the contract are not disclosed, the company has offered a little more insight. First, it is an enterprise software transaction leveraging its billing platform with a three year service term. The size of the contract has been described at a "multi-million dollar" level with approximately 60% recognized during the remaining two quarters of FY 2009. There is no customization required, so gross margins should be near the impressive 79% gross margin reported for Q2, 2009. As a result, this announced contract should represent a meaningful positive impact on performance for the year.
To review, Redknee reported financial results for Q2 2009 on May 12th where revenue for the quarter increased by 9% to $13.8 million versus $12.6 million for Q2 2008. The company reported EBITDA of $1.1 million for the quarter versus a loss of $0.6 million for Q2 2008, an increase of $1.7 million. Cash and equivalents increased to $20.3 million from $15.3 million for Q2 2008. The contract announced today should help to accelerate growth in sales and cashflow. Investors should also see improvement in EBITDA and earnings margins for the remaining two quarters of the year, as it gains operating leverage from the upsell.
Redknee has a growing worldwide presence in regions such as Latin America and the Middle East where the mobile infrastructure has been struggling to keep up with 40% annual growth in subscribers. Right now in the Middle East and North Africa, there are approximately 176 million mobile subscribers, representing 54% total penetration. Even as the worldwide recession takes its toll, the Middle East remains one of the most robust areas of growth in the world with 15% growth projected for 2009. The company has a handful of operator clients in the region, and this contract could become a reference for further penetration into the market as operators begin to think more about service bundling.
Service bundling is becoming an emerging priority because there are approximately 33 million landline subsribers and another 39 million internet users in the region. Although landline subscriber growth may be flat, internet subscriber growth continues to take off as more fixed wireless broadband networks are deployed.
It is undetermined whether analysts that are aware of this company were expecting a contract of this magnitude at this time. The stock has garnered very little analyst attention to this point, although there may be new impetus for some that have been on the sidelines to initiate coverage. The Company is closing in on a market cap of $100 million, is generating cash, and has a healthly balance sheet with over $20 million in cash and no significant debt. This profile should be attractive to analysts and, in turn, institutional investors.
The share price has had a healthy run since the middle of April, more than doubling since then on significantly higher volumes. Even as investors fret about whether the U.S. economy has bottomed, this particular Company is making inroads into the fastest growing region of one of the only sectors that has shown growth during the recession. The contract announced today could be considered validation that Redknee is positioned continue its growth trajectory while potentially increasing cash flow. Fundamentalists should take note.
Although the client and specific terms of the contract are not disclosed, the company has offered a little more insight. First, it is an enterprise software transaction leveraging its billing platform with a three year service term. The size of the contract has been described at a "multi-million dollar" level with approximately 60% recognized during the remaining two quarters of FY 2009. There is no customization required, so gross margins should be near the impressive 79% gross margin reported for Q2, 2009. As a result, this announced contract should represent a meaningful positive impact on performance for the year.
To review, Redknee reported financial results for Q2 2009 on May 12th where revenue for the quarter increased by 9% to $13.8 million versus $12.6 million for Q2 2008. The company reported EBITDA of $1.1 million for the quarter versus a loss of $0.6 million for Q2 2008, an increase of $1.7 million. Cash and equivalents increased to $20.3 million from $15.3 million for Q2 2008. The contract announced today should help to accelerate growth in sales and cashflow. Investors should also see improvement in EBITDA and earnings margins for the remaining two quarters of the year, as it gains operating leverage from the upsell.
Redknee has a growing worldwide presence in regions such as Latin America and the Middle East where the mobile infrastructure has been struggling to keep up with 40% annual growth in subscribers. Right now in the Middle East and North Africa, there are approximately 176 million mobile subscribers, representing 54% total penetration. Even as the worldwide recession takes its toll, the Middle East remains one of the most robust areas of growth in the world with 15% growth projected for 2009. The company has a handful of operator clients in the region, and this contract could become a reference for further penetration into the market as operators begin to think more about service bundling.
Service bundling is becoming an emerging priority because there are approximately 33 million landline subsribers and another 39 million internet users in the region. Although landline subscriber growth may be flat, internet subscriber growth continues to take off as more fixed wireless broadband networks are deployed.
It is undetermined whether analysts that are aware of this company were expecting a contract of this magnitude at this time. The stock has garnered very little analyst attention to this point, although there may be new impetus for some that have been on the sidelines to initiate coverage. The Company is closing in on a market cap of $100 million, is generating cash, and has a healthly balance sheet with over $20 million in cash and no significant debt. This profile should be attractive to analysts and, in turn, institutional investors.
The share price has had a healthy run since the middle of April, more than doubling since then on significantly higher volumes. Even as investors fret about whether the U.S. economy has bottomed, this particular Company is making inroads into the fastest growing region of one of the only sectors that has shown growth during the recession. The contract announced today could be considered validation that Redknee is positioned continue its growth trajectory while potentially increasing cash flow. Fundamentalists should take note.
5/13/09
Redknee (RKN.TO) positioned well to benefit from emerging mobile markets.
RKN.TO is a bit "under-the-radar" because it has only recently began trading on the TSX (October 21, 2008). It has good operating fundamentals with consistent earnings, and a little over $20 million in cash and equivalents with zero debt, although it retains an unused USD$10 million credit facility allocated for future acquisitions.
Headquartered in Mississauga, Redknee provides converged billing, rating, charging and policy solutions to tier 1 and emerging market mobile operators globally. Recently, it has introduced interesting prepaid billing solutions for the Blackberry, along with mobile payments solutions, which both play well in emerging markets such as Eastern Europe, Latin America, Middle East, Africa, and Southeast Asia. Prepaid services for smartphones should also be attractive to carriers in Europe, and even in North America where a major shift to prepaid accounts is occuring.
To provide some macro context, even as the current worldwide recession deepens, emerging economies represent nearly all of the current growth in mobile susbcriptions worldwide. For example, during 2008, mobile subscriptions in the Middle East grew by 47%. By several measures, Africa is beginning to emerge as the fastest growing market in the world. Additionally, in most regions, between 80% and 90% of subscriptions are prepaid. In some countries like UAE, total mobile subscription represents more than double the official population. This phenomenum is due to a significant population of foreign workers. Most of these workers do not have local bank accounts, and need to wire money home. As a result, there is significant demand for mobile money transfer solutions as mobile operators look to fill the demand gap by deploying technology similar to what RKN offers. In many emerging mobile markets, populations are far more likely to have a mobile subscription than a bank account. This condition is most acute where Redknee is having the most success; in Africa, the Caribbean, and Latin America where as high as 85% of the population remains unbanked.
Redknee reported financial results for Q2 2009 after markets closed yesterday, and conducted an analyst call at 8:30 this morning. Revenue for the quarter increased by 9% to $13.8 million versus $12.6 million for Q2 2008. The company reported EBITDA of $1.1 million for the quarter versus a loss of $0.6 million for Q2 2008, an increase of $1.7 million. Cash and equivalents increased to $20.3 million from $15.3 million for Q2 2008.
Since the beginning of calendar 2009, the Company has announced significant contracts with mobile operators in Africa, the Caribbean, and Latin America. Based on the conference call, investors should expect more contract announcements in these regions, along with others in the Middle East. Management has stated that it has a contract backlog of approximately $27.5 million, and that it anticipates recognizing slightly less than half of this revenue during Q3, which infers a revenue potential of approximately $13.2 million with gross margins of approximately $9.9 million. Cost containment should continue to reduce OpEx margin to around 70%, inferring an operating margin of approximately $0.6 million. Investors should be aware that typically Q3 performance is seasonally the weakest.
With $20.3 million in the bank, no debt, and consistent annualized growth in profitability, and improving margins, this is a stock to keep an eye on as it continues to benefit from worldwide trends in the mobile sector.
Headquartered in Mississauga, Redknee provides converged billing, rating, charging and policy solutions to tier 1 and emerging market mobile operators globally. Recently, it has introduced interesting prepaid billing solutions for the Blackberry, along with mobile payments solutions, which both play well in emerging markets such as Eastern Europe, Latin America, Middle East, Africa, and Southeast Asia. Prepaid services for smartphones should also be attractive to carriers in Europe, and even in North America where a major shift to prepaid accounts is occuring.
To provide some macro context, even as the current worldwide recession deepens, emerging economies represent nearly all of the current growth in mobile susbcriptions worldwide. For example, during 2008, mobile subscriptions in the Middle East grew by 47%. By several measures, Africa is beginning to emerge as the fastest growing market in the world. Additionally, in most regions, between 80% and 90% of subscriptions are prepaid. In some countries like UAE, total mobile subscription represents more than double the official population. This phenomenum is due to a significant population of foreign workers. Most of these workers do not have local bank accounts, and need to wire money home. As a result, there is significant demand for mobile money transfer solutions as mobile operators look to fill the demand gap by deploying technology similar to what RKN offers. In many emerging mobile markets, populations are far more likely to have a mobile subscription than a bank account. This condition is most acute where Redknee is having the most success; in Africa, the Caribbean, and Latin America where as high as 85% of the population remains unbanked.
Redknee reported financial results for Q2 2009 after markets closed yesterday, and conducted an analyst call at 8:30 this morning. Revenue for the quarter increased by 9% to $13.8 million versus $12.6 million for Q2 2008. The company reported EBITDA of $1.1 million for the quarter versus a loss of $0.6 million for Q2 2008, an increase of $1.7 million. Cash and equivalents increased to $20.3 million from $15.3 million for Q2 2008.
Since the beginning of calendar 2009, the Company has announced significant contracts with mobile operators in Africa, the Caribbean, and Latin America. Based on the conference call, investors should expect more contract announcements in these regions, along with others in the Middle East. Management has stated that it has a contract backlog of approximately $27.5 million, and that it anticipates recognizing slightly less than half of this revenue during Q3, which infers a revenue potential of approximately $13.2 million with gross margins of approximately $9.9 million. Cost containment should continue to reduce OpEx margin to around 70%, inferring an operating margin of approximately $0.6 million. Investors should be aware that typically Q3 performance is seasonally the weakest.
The company has focused on improving its gross margins and expects to report between 73% and 75% gross margins for upcoming quarters, depending upon how many hardware deployments are required. In addition, it has worked to reduce its total operating expenses as a percentage of revenue. During Q2 2008, expenses were repored at 71% of revenue, while gross margins came in at 79% of sales. Management expects operating expenses to decline marginally over the next few quarters to somewhere in the high 60s percentage range.
With $20.3 million in the bank, no debt, and consistent annualized growth in profitability, and improving margins, this is a stock to keep an eye on as it continues to benefit from worldwide trends in the mobile sector.
4/3/09
Billing Systems May Determine App Store Success
Earlier this week Research in Motion (RIMM) launched its proprietary mobile applications store, branded App World, presumably as a direct competitive response to the success of Apple's (AAPL) iPhone application store. RIM enters an emerging ecosystem that is both chaotic and complex and already worth approximately US$60 billion worldwide according to IDC projections. By the end of this year, Nokia (NOK), Google (GOOG), and Microsoft (MSFT) are all expected to launch mobile app stores. Some estimate that by 2013, the market size could more than quadruple from where it is now. Today, even with the introduction of iPhone applications, 99% of downloads are still games, ringtones, and music. More interestingly, only about 20% of subscribers have ever downloaded content or applications, although market research suggests that intentions are strong towards downloadable apps. Clearly, there is a huge potential, but there are a lot of intricate dynamics at play as the market emerges.
mobile application storefronts tend to fall into 3 primary categories.
The most entrenched retailing group continues to be the carriers (or operators in Europe), that have, for several years, been involved in ringtone, games, music, video and, more recently, application downloading . In North America, there are a handful of carriers, while in Europe there are between 40 and 50 operators plus dozens more MVNOs (mobile virtual network operators) that have helped to pioneer the market. Downloads are considered a core business for most carriers.
Soon after the market began, another group of vendors emerged, which are often called "off-portal" retailers. These Companies have similar offerings as the carriers, but with independent storefronts and provisioning systems, albiet hooked directly into the carriers' billing systems. Typically, off-portal retailers such as Jamster, Playphone, Zed, and dozens of others like them generate high margin revenue for the carriers through revenue-sharing models and they are tolerated, if not embraced, by the carriers.
More recently, beginning with the iPhone application store in 2008, leading smartphone and mobile OS manufacturers have begun to launch applications storefronts. Both Apple and RIM operate completely independent of the carriers, including billing, while Microsoft has chosen to integrate with carrier billing systems. All three vendors plus Nokia (which recently acquired the Symbian OS) and Google are attempting to foster active developer communities. Famously, the iPhone store already boasts over 30,000 independently created applications offered through its storefront. The Symbian OS had nearly 10,000 applications developed on it as of Q2 2008.
Who will be the ultimate winners and losers as the market takes off? In the end, the common denominator for success may not be at the customer interface, and there are likely few new killer apps that could drive traffic. If the storefront is not important, and the applications are neutral, what is the potential silver bullet for success?
Billing systems may determine winners and losers.
Experienced marketers agree that it is easier and more profitable to sell new services to current customers than it is to attract new customers. Carriers have a long billing history with millions of subscribers, and experience in exploiting the data channel. Content and application downloads are a simple extension of current carrier subscriber billing. A game, song or ringtone is simply added to a subscriber's monthly or prepaid bill with minimal effort by the consumer. More interestingly, carriers are masters at service bundling. As the market evolves, carriers are in a favourable position to offer service bundles for consumers that include mobile applications with household services packages. Such bundling may be difficult to counter by independent application stores.
Notwithstanding the recent entry by handset manufacturers and the future entry by OS vendors, the vast majority of the $60 billion in annual revenue to date has been realized by carriers. Mobile content and applications are core revenue stream that will grow in importance to carriers as voice becomes increasingly commoditized. Once the euphoria of the current development rush is over, and developers actually want to make money, applications will need to reside and operate equally on all enabled devices and networks. At some point in the future, as the market matures, the easiest way for consumers to discover, buy, and use the most popular and widest selection of applications may still be via carriers and their off-portal partners.
Over the next few years, major carriers are likely to accelerate investment in appropriate infrastructure to exploit their billing advantage in an effort to maintain or grow share of the application market. Third party infrastructure players such as Denmark's End2End, Canada's Wmode, Italy's Bournjourno (BNG.MI), and Seattle's struggling Motricity (which merged with InfoSpace (INSP) last year) may benefit from an upsurge in carrier, off-portal and MVNO investment.
Many could predict that off-portal retailers, especially ones that rely on the the fading ringtone market, may be at the beginning of an extinction cycle. This may be true with one goliath exception...Microsoft. Microsoft has been lost in the background to the iPhone/Blackberry hype. However, it is currently forming relationships and is building out infrastructure to become a primary off-portal partner to most carriers in North America, Europe and Asia. Although Microsoft may give up some margin to its carrier partners in return for easy billing, carrier alignment may help to accelerate Microsoft's land grab of the apps market. This marketing approach is in Microsoft's DNA and is a variant of earlier channel marketing that helped to drive MS-Dos and Windows success. Microsoft has proven to be a master product bundler, which should align well with carrier bundling.
mobile application storefronts tend to fall into 3 primary categories.
The most entrenched retailing group continues to be the carriers (or operators in Europe), that have, for several years, been involved in ringtone, games, music, video and, more recently, application downloading . In North America, there are a handful of carriers, while in Europe there are between 40 and 50 operators plus dozens more MVNOs (mobile virtual network operators) that have helped to pioneer the market. Downloads are considered a core business for most carriers.
Soon after the market began, another group of vendors emerged, which are often called "off-portal" retailers. These Companies have similar offerings as the carriers, but with independent storefronts and provisioning systems, albiet hooked directly into the carriers' billing systems. Typically, off-portal retailers such as Jamster, Playphone, Zed, and dozens of others like them generate high margin revenue for the carriers through revenue-sharing models and they are tolerated, if not embraced, by the carriers.
More recently, beginning with the iPhone application store in 2008, leading smartphone and mobile OS manufacturers have begun to launch applications storefronts. Both Apple and RIM operate completely independent of the carriers, including billing, while Microsoft has chosen to integrate with carrier billing systems. All three vendors plus Nokia (which recently acquired the Symbian OS) and Google are attempting to foster active developer communities. Famously, the iPhone store already boasts over 30,000 independently created applications offered through its storefront. The Symbian OS had nearly 10,000 applications developed on it as of Q2 2008.
Who will be the ultimate winners and losers as the market takes off? In the end, the common denominator for success may not be at the customer interface, and there are likely few new killer apps that could drive traffic. If the storefront is not important, and the applications are neutral, what is the potential silver bullet for success?
Billing systems may determine winners and losers.
Experienced marketers agree that it is easier and more profitable to sell new services to current customers than it is to attract new customers. Carriers have a long billing history with millions of subscribers, and experience in exploiting the data channel. Content and application downloads are a simple extension of current carrier subscriber billing. A game, song or ringtone is simply added to a subscriber's monthly or prepaid bill with minimal effort by the consumer. More interestingly, carriers are masters at service bundling. As the market evolves, carriers are in a favourable position to offer service bundles for consumers that include mobile applications with household services packages. Such bundling may be difficult to counter by independent application stores.
Notwithstanding the recent entry by handset manufacturers and the future entry by OS vendors, the vast majority of the $60 billion in annual revenue to date has been realized by carriers. Mobile content and applications are core revenue stream that will grow in importance to carriers as voice becomes increasingly commoditized. Once the euphoria of the current development rush is over, and developers actually want to make money, applications will need to reside and operate equally on all enabled devices and networks. At some point in the future, as the market matures, the easiest way for consumers to discover, buy, and use the most popular and widest selection of applications may still be via carriers and their off-portal partners.
Over the next few years, major carriers are likely to accelerate investment in appropriate infrastructure to exploit their billing advantage in an effort to maintain or grow share of the application market. Third party infrastructure players such as Denmark's End2End, Canada's Wmode, Italy's Bournjourno (BNG.MI), and Seattle's struggling Motricity (which merged with InfoSpace (INSP) last year) may benefit from an upsurge in carrier, off-portal and MVNO investment.
Many could predict that off-portal retailers, especially ones that rely on the the fading ringtone market, may be at the beginning of an extinction cycle. This may be true with one goliath exception...Microsoft. Microsoft has been lost in the background to the iPhone/Blackberry hype. However, it is currently forming relationships and is building out infrastructure to become a primary off-portal partner to most carriers in North America, Europe and Asia. Although Microsoft may give up some margin to its carrier partners in return for easy billing, carrier alignment may help to accelerate Microsoft's land grab of the apps market. This marketing approach is in Microsoft's DNA and is a variant of earlier channel marketing that helped to drive MS-Dos and Windows success. Microsoft has proven to be a master product bundler, which should align well with carrier bundling.
Despite its exclusive deal with AT&T, and its "walled-in" billing system, the App Store from Apple should maintain the momentum of its early success. It owes much of its future to the past. Without the success of the iPod and the iTunes media sales platform before it, the App Store would be challenged as an independent app retailer. As it stands now, the App Store is a simple extension of one of the largest billing account bases around...iTunes. Apple and the carriers are utilizing similar product line extension strategies.
With RIM's launch of App World, it introduced a completely new account base which is fundamentally unaligned with carriers. or with media. Paypal requires a new account commitment by mobile subscribers, which may be a barrier to uptake. With no "killer app" such as iTunes, consumers may find it too much trouble to download the App Store and set up a new billing account (if it does not overlap with a current paypal account). Are eBay (EBAY) buyers/sellers likely to download Blackberry apps? How much alignment is there between Paypal account holders, Blackberry users, and a desire to download an application? Whatever the number is at that intersection, the potential account base is probably a small fraction of any of the major US carriers, or of the Apple iTunes account base.
During its launch year, RIM may find difficulty gaining market traction. It is a smart company, and it is possible that the Management could find a way to integrate into the carrier billing systems at some future date in a similar way as Microsoft is preparing. However, based on conversations with industry insiders, there has been some resistance by RIM to integrate with carrier billing systems.
Within a broader strategic framework, RIM may simply be biding its time until an effective mobile payment system begins to proliferate, which could remove the need for intermediaries such as Paypal, and change the future dynamics of the entire market once again.
There is speculation that Google Android may come to market with Google Checkout as its billing backbone. The size of the Google Checkout account base does not register among the largest account bases among research sources at this point. If the speculation is true, there would need to be some heavy lifting on the billing side if Google were to compete head-to-head with the carriers.
Billing Systems for the Mobile App market ranked by scale.
- Cingular: 82 million mobile accounts
- Verizon: 78 million mobile accounts
- AT&T: 75 million mobile accounts
- Paypal: 70 million payment accounts (active)
- iTunes: 65 million media accounts (active)
- Sprint: 40 million mobile accounts
Sources: IE Market Research, Piper Jaffrey, Wikipedia,
Based the data above, although Microsoft would give up margin through carrier billing agreements, it could have nearly 5 times the reach as Apple would with iTunes in the United States alone. However, Apple is likely pleased with the scale of its iTunes account base because branding strength and focus should generate more revenue and margin per account then any other competitor. It does not need as much scale to be really successful. By introducing a non-aligned payment system into the mix, albeit a large one in the form of Paypal, RIM may be limiting its initial scaling capability. Although it is likely that the Company will adjust tactics as it gains more experience. A go-it-alone billing strategy may impede Google's future launch because Checkout does not appear to have the acceptance and scale of other billing systems. It is more likely that Nokia would follow Microsoft and align with carriers, especially since there are so many players in the European market where it is strongest.
The carriers and MVNOs will defend what they already consider to be a core business. Investment in infrastructure and marketing should increase. In the end, those entities with the largest and most advanced billing systems should prevail, which may suggest that the carriers could end up being major players in the space despite the hype surrounding the market entry by handset manufacturers. The ongoing decoupling of applications from hardware may also help to strengthen the future position of carriers and OS vendors like Microsoft and Nokia.
The mobile applications market is not well-formed yet, and there is a potential for some really interesting developments over the next 6 quarters as the mobile apps market goes through an adoption phase.
2/13/09
Mobile Apps Market Already Bigger than Online Advertising?
A Reuters article this morning suggests that Nokia is joining the rush towards mobile software sales. This is old news.
More interesting is that, in the article, Strategy Analytics forecasts the value of the mobile content market -- including downloadable games, ringtones, wallpapers, video, mobile TV, text alerts and mobile web browsing -- to grow 18 percent to $67 billion this year. Last week, I was writing a profile on the sector for a good friend of mine, and I was estimating that the mobile content market would range in size between $50 billion and $70 billion. I am more pessimistic than Strategy Analytics on growth forecasts for this year. Based on the people I am speaking to in the industry, 2009 is likely to show a flat to 5% growth over 2008, so I suggest that there is a greater likelihood that the market could measure slightly less than $60 billion. However, it doesn't matter what the growth rate is. The more important notion is the sheer scale of the market. Whether 2009 is worth $50 billion, or $70 billion, it is a massive market that has developed in record time.
I will put this into perspective. This is a quote from the last year's call transcript when Microsoft (MSFT-Q) announced its proposed takeover of Yahoo! (YHOO-Q). "The online advertising industry is a very large industry today at over $40 billion and it's forecasted to grow quite rapidly to reach nearly $80 billion in the next three years".
Many investors would likely be very surprised at the scale of the mobile content industry in comparison to online advertising. The mobile content market may even be larger than online advertising right now. Not only that, it is likely that the mobile content market will show sustained growth higher than the online advertising market over the next 5 years. As well, its sheer potential is probably over 10x greater due to the number of mobile subscriptions worldwide ( based on stats from IDC).
The reason why investors are likely to be surprised at the scale of the market is that there is no equivalent to Google (GOOG-Q) for investors to be wowed by. Essentially, there is no dominance and, in fact, the sector is marked by incredible fragmentation. Hundreds of thousands of content developers, thousands of content distributors and aggregators, hundreds of service providers including carriers, handset developers, online retailers, and software vendors are all vying in this market.
With the exception of some of the headline grabbers like Apple (APPL-Q), RIM (RIMM-Q), and Google, most of the ecosystem is undercapitalized and toiling in relative obscurity. The fragmentation makes it hard to make money, and the complexity of the ecosystem spooks investors. However, in this problem lies a really robust opportunity for consolidation. In end (within 10 years), the majors will divide this giant pie amongst themselves. However, in the meantime, there are potential small-cap consolidators on every continent.
Earlier this winter some of Bay Street got a chance to see a possible consolidator candidate operating out of Europe. I believe that there are few other potential candidates operating in North America that are generating cashflow and recognize the opportunities for roll-ups. Investors that back some of these operators could make a lot of money as the ecosystem matures (BTW...none are operating in Toronto).
More interesting is that, in the article, Strategy Analytics forecasts the value of the mobile content market -- including downloadable games, ringtones, wallpapers, video, mobile TV, text alerts and mobile web browsing -- to grow 18 percent to $67 billion this year. Last week, I was writing a profile on the sector for a good friend of mine, and I was estimating that the mobile content market would range in size between $50 billion and $70 billion. I am more pessimistic than Strategy Analytics on growth forecasts for this year. Based on the people I am speaking to in the industry, 2009 is likely to show a flat to 5% growth over 2008, so I suggest that there is a greater likelihood that the market could measure slightly less than $60 billion. However, it doesn't matter what the growth rate is. The more important notion is the sheer scale of the market. Whether 2009 is worth $50 billion, or $70 billion, it is a massive market that has developed in record time.
I will put this into perspective. This is a quote from the last year's call transcript when Microsoft (MSFT-Q) announced its proposed takeover of Yahoo! (YHOO-Q). "The online advertising industry is a very large industry today at over $40 billion and it's forecasted to grow quite rapidly to reach nearly $80 billion in the next three years".
Many investors would likely be very surprised at the scale of the mobile content industry in comparison to online advertising. The mobile content market may even be larger than online advertising right now. Not only that, it is likely that the mobile content market will show sustained growth higher than the online advertising market over the next 5 years. As well, its sheer potential is probably over 10x greater due to the number of mobile subscriptions worldwide ( based on stats from IDC).
The reason why investors are likely to be surprised at the scale of the market is that there is no equivalent to Google (GOOG-Q) for investors to be wowed by. Essentially, there is no dominance and, in fact, the sector is marked by incredible fragmentation. Hundreds of thousands of content developers, thousands of content distributors and aggregators, hundreds of service providers including carriers, handset developers, online retailers, and software vendors are all vying in this market.
With the exception of some of the headline grabbers like Apple (APPL-Q), RIM (RIMM-Q), and Google, most of the ecosystem is undercapitalized and toiling in relative obscurity. The fragmentation makes it hard to make money, and the complexity of the ecosystem spooks investors. However, in this problem lies a really robust opportunity for consolidation. In end (within 10 years), the majors will divide this giant pie amongst themselves. However, in the meantime, there are potential small-cap consolidators on every continent.
Earlier this winter some of Bay Street got a chance to see a possible consolidator candidate operating out of Europe. I believe that there are few other potential candidates operating in North America that are generating cashflow and recognize the opportunities for roll-ups. Investors that back some of these operators could make a lot of money as the ecosystem matures (BTW...none are operating in Toronto).
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