Crowd Mobile Limited (“Crowd Mobile”, “the Company”) is an Australian technology Company focused on mobile software and services. The Company owns and operates a portfolio of trade marked software applications (“apps”) and messaging services for mobile devices, orientated toward the delivery of consumer advice. Founded in 2005, the Company has operations in Australia, New Zealand, United Kingdom, Ireland, Germany, Austria, Italy, France, Belgium, The Netherlands, Hungary, Portugal and Switzerland.
Crowd Mobile listed on the Australian Securities Exchange in January 2015, via a reverse merger with Q Limited. The listing coincided with a consolidation of Q Limited shares on a 1:40 basis and a $0.5million equity raising at $0.20/share (post consolidation). Issued capital of the combined entity stands at $2million, or $0.028/share. Existing and new investors associated with Crowd Mobile accounted for 94.7 per cent of shares in the combined entity.
Asset Overview – Crowd Mobile Platform
Crowd Mobile’s primary asset is a portfolio of mobile software applications and messaging services orientated toward the delivery of consumer advice. The portfolio has been developed since 2005 and is supported by an integrated cloud based management platform which allows the Company to service user demands utilising 'crowd sourcing’ techniques (“Crowd Mobile Platform”).
Services provided by the Crowd Mobile Platform and its constituent applications are ‘question and answer’ orientated. Typically, consumers seeking advice on a particular matter send questions through one of Crowd Mobile’s service channels, for which the Company procures a rapid, relevant, tailored response.
The capacity to efficiently manage inbound questions and procure relevant responses is a critical feature of the Crowd Mobile Platform. During 2014, Crowd Mobile charged customers for over 3.4 million questions and internal testing of its technology platform has identified few capacity constraints to accommodate future growth.
Background – Freemium Model Business
Since its launch in 2008, the number of mobile software applications available in the Apple App Store has grown to 1.3 million. Consumption via the Apple App Store accounts for over half of the global apps market, which was estimated by Frost and Sullivan to be worth A$19.3 billion in 2013.
App developers typically generate income by charging users a one off fee, or via the provision of billable services within an otherwise freely available app (“freemium”). According to data compiled by Statista, under 10 per cent of app downloads are paid, indicating that freemium models account for over 90 per cent of the market by volume2. This market is dominated by game developers, with IBIS World estimating that over half of all apps are gaming apps.
Crowd Mobile’s services fall under the ‘freemium’ category. Supporting applications are free to download, with utilization of the service incurring charges on a ‘per question’ basis. In contrast to gaming apps currently dominating the market, Crowd Mobile’s services are oriented toward consumer advice. Services available cover consumer advice topics, including fashion, morals, and gossip.
Features and Benefits – Less Capital Intensive
Relative to gaming services which presently dominate the mobile apps market, Crowd Mobile’s business model appears less capital intensive and lower risk.
The ‘question and answer’ nature of its portfolio requires relatively low development and maintenance costs. The Crowd Mobile Platform manages order flow, whilst responses are generated by specialized contractors, remunerated on a ‘per answer’ basis. Crowd Mobile engages over 500 contractors located around the world answering in half a dozen languages. This operating structure ensures continuous “24/7” service availability and reduces fixed costs for the Company.
Moderators of the Crowd Mobile Platform can utilize a 51million question and response archive to accelerate service delivery, whilst features such as auto correction and keyword matching maintain quality control between correspondences.
Analytical features of Crowd Mobile Platform allow the Company to identify changes in consumer trends and develop targeted services to complement its existing portfolio.
Commercialisation Strategy – Expansion into 20 Countries
Crowd Mobile’s portfolio and distribution capability has historically been oriented toward PSMS services, which can be utilized by all mobile devices. However in light of increasing smart phone adoption, the Company’s recent strategic focus has been the Crowd Mobile Platform. Cloud based, versatile, and scalable – the Crowd Mobile Platform is capable of receiving of questions from a variety medium such as SMS, Web, and Apps.
Crowd Mobile’s initial focus is to expand these services with established demand profiles into new markets. Over the past 12 months, the Company has successfully expanded into non English speaking markets and now operates in 13 countries. Plans are in place to be operating in over 20 countries within the next two years.
Concurrently, the Company is developing a pipeline of new products capable of delivering professional advisory services and relationship advice. Existing infrastructure associated with the Crowd Mobile Platform allows new services to be developed for low capital outlay.
Return on Market Expenditure – Critical Economic Driver
The cost of utilizing Crowd Mobile’s services typically ranges from $2 to $10 per question for the consumer. Crowd Mobile derives between 35% - 75% of these proceeds with the balance retained by distributors (telco and app stores). After deducting distributor splits, the Company generated revenue of $2.80 per question on average during FY14. Whilst most revenue was generated via PSMS services, the Crowd Mobile Platform has now removed this constraint.
With researchers paid a fixed split out of net revenue on a ‘per answer’ basis, the primary determinant of commercial success remains returns associated with marketing expenditure. The average user life cycle of Crowd Mobile’s services has historically been up to seven service requests, hence there is a need to constantly procure new users.
Crowd Mobile conducts targeting marketing via social media and a joint venture with MTV. Its marketing strategy requires expenditure to be effectively ‘repaid’ via the first service requests generated by procured customers. Based on the Company’s existing fixed cost profile, and assuming that initial service requests ‘repay’ variable marketing costs, we estimate that customers become profitable after the 2nd question.
Crowd Mobile generates income via the provision of mobile software services and applications. Prior to its reverse merger with Q Limited, Crowd Mobile generated revenue of $9.8million, normalised EBITDA of $2.19million, and before tax profit of $1.5million during FY14.
Against the previous corresponding period (pcp), revenue was largely flat, predominantly driven by PSMS services. Earnings contracted by approximately one third, related to increased marketing and software development expenditures associated with the Crowd Mobile Platform. The platform expands Crowd Mobile’s distribution capability beyond Premium SMS. Marketing and development costs are completely expensed in their year of occurrence.
Alongside retained earnings, Crowd Mobile has funded its growth strategy via a combination of hybrid securities and equity. To accompany its reverse merger with Q Ltd, Crowd Mobile issued new shares worth $2million at $0.20/share. Stock to the value of $0.3million was issued as consideration for existing convertible notes, $1million was issued in lieu of corporate advisory and director fees, whilst proceeds of $0.67million were raised from new shareholders with proceeds budgeted for working capital purposes. We estimate issued capital following the reverse merger and capital raise to be $2million, or $0.028/share.
The Company generated 153% revenue growth to $14 million during 1H16. Subsequently, underlying EBITDA expanded 89% to $2.19 million. As of December 2015, cash and cash equivalents reached $5.9 million and the Company has also recorded positive operating cash flow of $3.2 million. Billed message volumes increased 86% to 4.1 million messages.
However, the Company posted a net loss of $0.75 million for the half year ended December 2015. The statutory net loss reflects significant one-off non-cash share payments of $1.3 million and one-off transaction costs of $0.9 million regarding the Track acquisition. The underlying EBITDA for the period improved to $2.2 million from $1.2 million during the pcp. Management expects the growth momentum to continue in FY17.
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