Monday, 24 April 2017

My Preliminary Thoughts on PKK's Latest Pivot

Peak Positioning Technologies (PKK.C) (PKKFF) released an updated investor presentation and news release this morning following its attendance at the GCFF conference in Vancouver. I don't have enough information to release a full blown article but I thought I would share some quick thoughts. I plan to update it once the company has released Q4 and provided official guidance.

Peak has pivoted once again into more lucrative businesses with the introduction of Asia Synergy Data Solutions (ASDS) and a proposed financial institution Asia Synergy Financial Capital (ASFC). ASDS teaming up with Cubeler sounds a lot like what LongKey would have been, except with the backing of ZHWY Enterprises. ASFC is the method for Peak to try to increase its margins as it looks to bring the lending component of the Gold River platform in-house.

With these pivots which will obviously be very good for the long-term, it sounds like there will be some short term "pain" in that Q4 revenue probably won't come in as expected. I'm not too disturbed by this. We know from a prior news release that PKK will be recording at least $50 million in revenue for 2016. Going from $0 to $50 million in revenue in a year is still a monumental accomplishment, even if it's a little less of an accomplishment than going from $0 to $100 million a year.

On page 23 of the presentation, there are two numbers referenced for AST in 2017. $503 million in revenue and a $10.8 million number which isn't clear if that's gross margin or EBITDA or something else. Assuming that is the case, this would be below previous guidance of a 3-5% EBITDA margin on $550 million in revenue stated in the Q3 news release. Offsetting that is the $1.4 million in projected revenue for ASDS in 2017 and the unknown benefit of ASFC assuming it goes live as planned some time in 2017.

Based on this, it looks like PKK will take a little longer to get to my $0.50 target as first planned, at least justifiable from financial ratios. There always remains the possibility that speculative investors will like this new business and bid up the stock to very high valuations in the near term. But by 2019 revenue for AST and ASDS is expected to be a combined $887 million. It's difficult to project such a fast growing business two years out, but if these numbers do in fact come true with $50M in EBITDA or greater, a $0.50 stock price should be more than justified.

Assuming the $10.8 million number is EBITDA for 2017, this still justifies my first target of $0.20:

$10.8M x 15 EV/EBITDA multiple = $162M EV
$162M EV + $10M in cash from exercise of warrants and options = $172M market cap
$172M / 678M fully diluted shares = $0.25 per share

There was a small sell-off this morning to 14 cents after the warning about the negative impact on the near-term numbers and some of the ambiguity around these projections. Buying has picked back up and the stock is trading at 15 cents, down a penny. I think it is reasonable to assume that Q4 will be disappointing relative to previous guidance (but still great compared to where the company was in 2015). However, 2017 guidance could go in either direction depending on how quickly PKK can get ASFC up and running. For now, I think we should assume revenue just slightly over $500M and margin/EBITDA slightly over $10M, but even that should support the stock price where it is now.

With this pivot there is no guarantee of success for ASFC or even that it will get off that ground. But that's why PKK is trading at a fully diluted market cap of $100M and not much higher. I remain confident of my heavy investment in PKK, other investors can figure out for themselves if they share that same level of confidence.

EDIT: This is what PKK's CEO Johnson Joseph had to say shortly after I released this piece:




Wednesday, 5 April 2017

First Global Data Valuation Matrix

A few weeks ago, I presented a $5.00 target on First Global Data (FGBDF) (FGD.V) by the end of 2018. This target assumed that the company can achieve 5 million users at an average EBITDA per user of $26 by that time. It was based off of a 15x EBITDA multiple, 400 million fully diluted shares and $52 million in cash received from the assumption that all warrants and options would be exercised. Presented below is a chart that displays a matrix of potential stock prices based on a range of 100,000 to 100 million users and an average EBITDA per user from $10 to $90.


The scenario closest to my target price assumes 5 million users at a $25 average EBITDA per user, which leads to $4.82. To get to $4.82 it is calculated as follows:

5,000,000 users x $25 EBITDA per user = $125 million EBITDA
$125 million EBITDA x 15x multiple = $1,875 million enterprise value
$1,875 million / 400 million shares = $4.69 per share
$52 million in cash from warrants / 400 million shares = $0.13 per share in cash
Add back $0.13 per share in cash to get to $4.82

(Read up on what enterprise value means to understand why I add the cash back in this situation - I'm sick of answering questions like this)

If someone thinks that a 15x EBITDA multiple is too high, it is easy enough to change it. If you wanted to use a 10x multiple, all you need to do is subtract the $0.13 per share in cash, multiply that number by 10/15 and add back the $0.13 per share. For instance:

$4.82 - $0.13 = $4.69
$4.69 x 10/15 = $3.13
$3.13 + $0.13 = $3.26 per share valuation based on a 10x EBITDA multiple

FGD's CEO Andre Itwaru has gone on record to state that based off of one million users, he thinks FGD can achieve $146.1 million in revenue and $93.5 million in EBITDA (page 11 of the January corporate presentation). This is a $146 average revenue per user (ARPU) and a 64% margin, leading to a $93.50 average EBITDA per user. Keep in mind this assumes a 50-50 split in revenue between FGD and its partners, so gross ARPU would be $292. Until I see ARPU figures proving otherwise, I personally think that these numbers will be a challenge to meet. That's why my chart ranges as low a $10 EBITDA per user and up to the company's estimate of $90. Assuming a 64% margin, a $25 average EBITDA per user equates to a $39 ARPU.

We know that based on the Google Play install stats that VPayQwik, FGD's app in partnership with Vijaya Bank, is over 100,000 users. I estimate the installs to be at least 130,000. Keep in mind that this is only for India. VPayQwik was launched in mid-September 2016 so the revenue and profits disclosed by FGD for the first nine months of the year was largely based off of the company's North American remittance business. FGD hasn't disclosed how many users it has in North America, but we can assume this is substantial and growing based on the Alexa traffic stats for FGD's business site firstglobalmoney.com.


So how many users does FGD have? Something well over 100,000 and growing. If FGD has 500,000 users at an average ARPU of $39 and average EBITDA per user of $25, that leads to a $0.60 stock price. Of course, at this early stage FGD won't be valued based solely on current business metrics, but the reasonable expectation of growth since the Indian and North American businesses are robust and the various partnerships announced over the last several months will be deployed soon enough.

I have already stated my belief that the company can achieve 5 million users in a timeline of a little over a year and that leads to substantial upside even if the ARPU comes in at around 25-30% of the company's expectation. Let's look at the long term upside. Let's say that FGD eventually does achieve 100 million users. This could take several years, but it is well within the realm of possibility upon continued execution and deployment of partnerships. 

Let's say that of those 100 million users, a lot of them are low value and that drags down the average ARPU. Given FGD's focus on the developing world that may be a fair assumption. Even if the annual EBITDA per user is a mere $10, the stock price would be $37.63 based off of a 15x EBITDA multiple. If the company is extremely successful and somehow manages to pull off a $90 EBITDA per user on this large base of 100 million users, the stock price would be $337.63 based off of a 15x EBITDA multiple.

I don't know if FGD will ever get to these crazy prices, or if it will be bought out well before then or if I would even hold that long. But at $0.80 this isn't a concern yet. FGD has a ton of upside from here as my valuation matrix indicates.





Monday, 30 January 2017

Analysis of Keek's Q3 results

Keek (KEEKF) (KEK.V) posted its financial results and MD&A on SEDAR. Here are my thoughts and/or highlights of what I find to be the most important issues:

  • There is a line in the MD&A which states: "The Offer Box is currently in development and deployment to the Peeks service is now expected during the 2018 fiscal year." At first I had a WTF moment, until I realized that fiscal 2017 ends this February. Fiscal 2018 runs from March 2017 to February 2018. My best guess is that we're probably looking at a March-April timeline, but Mark Itwaru is keeping his cards close to him this time, and not giving us a more definite timeline.
  • The iOS disruption details are as follows: "On January 16, 2016, the iOS version of the Peeks app was removed from the App Store by Apple. The iOS app was deemed to be non-compliant with Apple’s App Review Guidelines, specifically in that it required improvements to control the display of user generated content of a mature nature, and the addition of in-app purchase capabilities. The removal of the iOS version from the App Store has caused a significant negative impact on new registrations and the general growth of the platform. The Company expects the iOS version to be available again in the very near future. The Company expects that growth rates across all metrics will be restrained until such time as a new iOS version can be released to the public. Should that require an extended period of time, the Peeks service may see a period of decline in user activity. However, in the week following Apple’s decision, it is estimated that transactions on the service had still increased approximately 40% as compared to the last week of December 2016."  
  • The bad news - the company is non-committal over the timing that the iOS issue will be resolved. There is also some ambiguity around the "in-app purchase" capabilities. One shareholder and I have been discussing Apple's TOS for developers and if paid streams constitute an in-app purchase and are therefore subject to going through Apple's payment systems. The good news - even without Apple the disruption was temporary. Transactions are still up 40% versus the last week of December.
  • Revenue was $6,810, split evenly between ad revenue and tipping revenue. This covers only the first few weeks of Peeks being live in November, so this low amount doesn't worry me.
  • Total opex was $1,520K. This includes $850K of stock compensation expense. Excluding this number, as well as the gain on disposal of a long lived asset (-$67K), FX impact ($26K) and amortization ($20K) leads to $691K in cash costs for the quarter. This is $230K a month, or slightly over the $150-$175K the company has previously forecasted. It's not egregiously over budget, but I think with the growth of the app, we can expect hiring so I don't think this forecast is applicable any more. However, I expect revenue to more that offset that in the future. 
  • The company made excellent progress in paying down its trade payables, as evidenced by a gain on the settlement of debts of $592K. In the subsequent events section, the company settled another $449K of payables for $161K, netting a gain of $288K. 501K of options and warrants with a strike price of $0.30 were exercised since November 30th, improving the balance sheet some more going forward. This is a smaller amount than I would have expected, so selling pressure hasn't come from warrant exercises.
  • No ARPU number, but I really like this paragraph in the MD&A: "Through December 2016 and into January 2017 the Peeks service saw significant growth across all aspects of the service including in the percent of transacting users and the number of transactions. On November 30, 2016, approximately 1.4% of registered Peeks users had a credit card associated with their Peeks account. By December 31, 2016, this number had increased to approximately 3.4%, and by January 15, 2016, had increased to approximately 6.0%. Similarly, the estimated daily average aggregate dollar amount of user transactions on the Peeks service (tipping and purchasing of paid broadcasts) in the last week of December was approximately 1,000% of the daily average in November 2016."
  • Revenue share to Peeks was 45% of all tips. Keek is entitled to 30% of that, or 13.5% of all tips generated in November. If Keek earned $3,400 in tips, the gross amount of tips on the Peeks platform for the period ending November was $25,000.
  • Using the above as a guide, if total tips were $25,000 for the month of November and by the end of December the run rate was 10 times that, that's $250,000 in tips generated on the platform. Judging by anecdotal evidence and observations collected by shareholders from a couple of weeks ago (~$20K tips/day), third party app usage stats and the credit card information presented above (6.0% vs. 3.4%), it looks like mid-January was 2-3x more active than the end of December. Note that the $250,000 run rate I calculate at the end of December ($8,000 a day) is quite aligned to anecdotal observations made by KEK investors on the Facebook investor group around that time ($5,000-$6.000 a day). However, this was prior to the Apple issue. The company claims that by the end of January that transactions were still up 40% over December. That would mean the run rate would be $350,000 without Apple. Probably around $700,000 with Apple once it does get back online.
  • If Peeks has averaged $300,000 in tips a month for December and January and if the revenue share stays steady at 13.5%, that would mean KEK earned $80,000 in total revenue for the two months. The run-rate of $350,000 means that KEK is at a $47,000 monthly revenue run rate heading into February. 
These are my observations after a quick look at the MD&A and financial statements. I may have more observations after reading this material again and letting it sink in. 

Monday, 16 January 2017

KEK Shareholders Can Sleep Well Tonight: Peeks Was Pulled Off The Apple Store By Keek

After a strong start to the day, Keek (KEK.V) ended down 7% as people noticed that the app was no longer available for download on the Apple store and people were fearing the worst - that Apple stopped supporting the app thanks to the amount of nudie shows taking place.

Keek shareholders can sleep well tonight. The app was pulled down by the developer (Keek), per the messages that a fellow shareholder posted in the Keek Facebook Investor Group that I am posting below. Does this mean that the new UI is coming any day now? Possibly. But what it does confirm is that Peeks Social is not in the line of fire from Apple. If anything, I would take a guess that this was a proactive move from the company to ensure that it doesn't become a stench to Apple while it figures out how to hide the porn as adeptly as possible while still protecting freedom of speech and expression for its users.

For those who aren't in the group already, I really recommend that you join so you can stay in the loop with important developments such as this:

https://www.facebook.com/groups/190918448004346/










How Much Money Is Peeks Making? A Lot More Than It Did A Month Ago

How much money is Peeks making? A lot more than it did a month ago if you've been paying attention to the activity on the app over that period of time. For those who don't know, Peeks is the social commerce app essentially 30% owned by Keek (OTCQB:KEEKF)(KEK.V). If you don't know what I mean by "essentially", read the company's MD&A or my blogs on Seeking Alpha for background.

Us shareholders have been patiently waiting for the update to the new UI for a few weeks now which would officially mark the start of Peeks' active promotion. But in the meantime we have been witnessing tremendous organic growth, even if that growth is mostly in the form of pornographic content. For those of you who haven't already, join the Peeks/Keek Investor Group at this link:

https://www.facebook.com/groups/190918448004346/

Here is a screenshot of some work done by one of the members of the group who has been tracking the money earned by the streams that have required a payment to watch. This is done by multiplying the entry fee by the number of viewers for each stream. He came up with $21,398 earned in the 24 hour period leading up to his post on the evening of January 14th:



This analysis does have one hole in that streams can go from free to paid mid-stream and there is no way to track who exactly paid after the fact when it does happen. However, this is offset as voluntary tips aren't counted, so I would lean to it underestimating tips on the platform rather than overestimating them. Also, regardless of the actual number, we see that the daily enforced tips has tripled from the $6,000 to $8,000 he calculated just three weeks ago using the exact same methodology. So Peeks is definitely making more money.

If Peeks generated $20,000 in tips a day going forward and collected 35% revenue share, that would lead to a daily revenue of $7,000 or $630,000 per quarter. KEK would be entitled to 30% of that, or $189,000. And this is just 2.5 months since the app went live. Even if the new UI and offer box were to be complete duds, Peeks would justify a bullish thesis going forward just as a porn app. The bulk of the tips are being generated by a couple dozen very active content providers. Imagine if that was multiplied by 1,000.

How many strippers and similar type of workers are there across North America? Maybe 500,000? Those people would have two choices:

Livestream on Peeks from the comfort and safety of their own home. The app takes a 30-50% cut and they get cat-called by a bunch of seedy guys.

Or

Work at a strip club. Have a bunch of seedy guys groping them in addition to the cat-calling. Their employer takes a 30-50% cut or more, depending on the place they work for, and they get to deal with catty co-worker drama.

Peeks has the ability to turn the web cam industry into something mainstream. Porn without the Pornhub stigma. Naysayers can deny or question it all they want, but it is clearly working. The people who are on Peeks night-in and night-out wouldn't be on there if they weren't making good money. The proof of concept is there, now Peeks just needs scale. And remember, this is without considering the offer box or that the new UI should allow Peeks management and the public relations firm to market this app to the mainstream as it hides the porn into its own room behind a curtain like bricks and mortar video stores use to do.

Daily ranks on App Annie have continued to trend upward. You can view Peeks App Annie stats at this link, but you will have to sign up for an account. Here's a screen capture of some of the top rankings by country:



Notice that there are now 29 countries that have Peeks in their top 500 most downloaded social apps. In a previous article, I showed that Peeks has improved from the #398 ranked social app in the United States on December 11 to #72 on January 10. On January 14, Peeks hit a new high in the United States, now ranked at #66. Canada has also been steadily rising to #133. I find the rest of the countries to be too volatile in the 200-500 ranks; some are up or down over 100 points in a day. But Peeks is definitely trending in the right direction.










Sunday, 15 January 2017

First Global Data Passes 100,000 Subscribers

In a recent interview, First Global Data (OTC:FGBDF)(FGD.V) CEO Andre Itwaru estimated that the company could earn $140 million in revenue and $90 million in EBITDA upon reaching one million subscribers. According to the Google Play app store, VPayQwik, which is FGD's app in conjunction with Vijaya Bank in India, has just surpassed 100,000 installs. Assuming one install per subscriber, FGD is already 10% of the way to its one million subscriber goal. The app surpassed 100,000 installs at 840 ratings so now we have a reasonable estimate of installs going forward based on the growth of ratings as a proxy. I would expect the app to surpass 500,000 installs (the next category on the Google Play store) somewhere around 4,000-4,500 ratings.

Given that the company has achieved 100,000 subscribers two weeks into January, is it fair to estimate that from this one deal alone $14 million in revenue and $9 million in EBITDA can be generated in 2017 even with no further growth? That alone would already justify a market cap in excess of $100 million.

Keep in mind that the VPayQwik app has surpassed 100,000 installs without iOS availability. The CEO has mentioned to me that he expects VPayQwik to become available for iOS shortly.

If you haven't already, you can join the First Global Data Investor Group at the following link:

https://www.facebook.com/groups/377851355894645/

It was a member of that group who alerted me to VPayQwik's graduation from the 50,000-100,000 category to the 100,000-500,000 category, so as you can tell we share good due diligence and real conversation about our investment in that group.

Growth in popularity of the VPayQwik app can be tracked using App Annie. The direct link is here, but you will need to create an account to access it. In the meantime, here is a screenshot of the app's history of growth since its debut on September 19th to today. It debuted at spot #202 in the shopping category within India and has steadily grown to spot #91, reaching as high as #55 in early December at the peak of holiday shopping season (as I write this, I realize that the spike couldn't really be due to the holiday shopping season since ALL apps under the shopping category should see a spike in activity around this time). I had erroneously assumed that VPayQwik went live in November when the company first told us about it in a press release, but this does not change my previous analysis where I assumed this app would drive record Q4 revenue and profits for the company. The app was available for only two weeks in Q3 and didn't really take off until mid-October.



Thursday, 5 January 2017

Spackman Finally Moves To Fair Value; PKK To Follow?

For those who followed my blog for a while, you'll probably remember when I recommended Spackman Equities Group (SQG) about a year ago. It was highly undervalued, about a 50% to 75% discount to NAV on any given day so I thought it was a good buy despite being part of a complicated web of Spackman companies which ensured the management team was handsomely compensated.

I sold Spackman a while ago to buy KEK. I didn't want to sell but when having limited funds I need to make tough decisions like that, and it ended up working out well for me so I have no complaints even as I see SQG spike to 12 cents today.

For those new to SQG, I don't think it is such a strong buy anymore. 40E (the underlying - look at my old post if you're clueless as to what that is) is 19 cents. So at 12 cents, SQG is still trading at around a 33% discount to its NAV. But historically it's always traded at around a 50% discount or more. Given the management compensation plan, I think it is at a fair discount now.

I was wrong in my estimate of how well Black Priests (Spackman's box office hit from last year) would do for 40E's bottom line. So investors need to be prepared that the latest blockbuster movie might not result in big profits. If 40E moves above 25 cents I think SQG can hold at 12 cents or higher. But right now the risk-reward wouldn't make sense to me, and if I had any shares left I would have sold them today.

What I can say is that after many months, my call of SQG being undervalued was finally vindicated, even if I didn't participate in those gains. So I'll twist this into a story that will hopefully benefit me. If one of my previous highly undervalued Asian-focused stock picks finally moved, perhaps its time for Peak Positioning Technologies (PKK) to move next. Have a look through my blogs here and on Seeking Alpha to get an idea of what that story is all about. PKK is forecasting $16.5 million to $27.5 million in EBITDA in 2017. With 700 fully diluted shares, that's a EBITDA multiple of around 2 at a 6 cent stock price. I missed out on Spackman's run. I won't be missing out on PKK's run.