Options Media Group: A Growth Play on Ad Spending Shift
Posted on: June 3, 2009 - Email Article - Printable Version
In response to BioMedReports.com subscriber emails, we will add periodic article coverage of emerging small/micro-cap companies outside of the healthcare sector which offer similar high risk/reward trades as the Extreme Trade article series of pending FDA decisions and clinical trial results.
Options Media Group [OPMG: 0.00, N/A (N/A)] is a leading company in the fast-growing Email Service Provider (ESP) space which offers its clients a full array of direct, mobile, digital, and Internet marketing solutions with the ability to create, execute, and track e-marketing campaigns to a highly targeted audience. Services include email marketing, mobile (SMS or text messaging) marketing, SMS keyword marketing, and custom lead generation as a full-service marketing solution focused on new media outreach which is more targeted and effective than traditional outlets such as print, television, and radio.
In mid-May, OPMG released its 1Q09 operating results, which included revenue of $2.2M, gross profit of $1.5M (70% gross margin), and a net loss of $1.4M – equivalent to a fully diluted loss of ($0.02) per share on 58.2M shares. The operating expenses of $2.8M include $0.6M of non-cash items from stock-based compensation, depreciation, and amortization while the net cash used to fund operations during 1Q09 was $0.7M and available cash balance was $265,000 as of 5/13/09. The Company owes $1.43M in secured notes, including $50,000 due 6/509 and $1.38M due 7/13/09 (as well as an additional $140,000 in unsecured notes due 12/31/09).
If you can accept the risk of a low cash balance and near-term notes coming due, OPMG can be viewed as a catalyst trade on its ability to secure about $2M in funding (the Board authorized a private placement of up to 7M shares at $0.25/share in May 2009) to keep the lights on and execute strategic growth initiatives. Another $1M in quarterly revenue at 70% margins would place the Company at or near cash flow break-even, and this is a realistic sales growth target given that OPMG is still in the very early stages of its growth curve (prior to 6/23/08 OPMG was still in the development stage without material assets or business activities).
Other highlights during 1Q09 include (1) the hiring and training of 10 new people for the sales team (who accounted for 15% of the Company’s revenue during the quarter); (2) negotiating favorable pricing terms from vendors to increase margins; (3) adding new SMS mobile marketing capabilities; and (4) upgraded technologies and systems to improve tracking, services, and customer satisfaction.
The Company differentiates itself in the ESP space by providing services for large volume opt-in mailers, and OPMG is beta testing a new ESP platform to be a leader in this segment – which has the potential to generate millions in new revenue in the coming quarters. OPMG is also in the process of acquiring additional data with the potential to significantly increase the Company’s ability to generate sales and offer new mailing opportunities for both existing and prospective clients.
The ESP business provides the means for companies to effectively communicate with large databases of customers in an efficient and effective manner by email. Lead generation services (CPM) involve providing databases of highly targeted audiences for marketing campaigns – see the accompanying image for an example of digital lead generation for pharmaceutical company Sanofi-Aventis [SNY: 29.70, 0.00 (0.00%)] and its insomnia drug Ambien CR. Mobile (SMS or text messaging) marketing represents an opt-in advertising platform which is highly targeted to individual client products and services and delivered to the appropriate demographic.
SMS (text messaging) mobile marketing revenue surged by more than 300% from the previous quarter due to the positive effects of both new business orders and the expansion of business with existing customers. Mobile marketing through text messaging has a very high success rate with a high proportion of messages read. The Company’s client list includes AT&T [T: 27.33, -0.02 (-0.07%)], Dell Inc. [DELL: 12.37, +0.25 (+2.06%)], Disney [DIS: 33.85, +0.34 (+1.01%)], the U.S. Navy, and others.
OPMG offers the software, hardware, bandwidth, domains, and 24-hour technical support for its clients, who can manage their accounts easily with just a username and password. Clients have the ability to manage and upload their subscribers, schedule a series of trigger-based emails, and access detailed tracking reports.. Total Internet marketing is expected to increase 8.9% during 2009 to a level of $25.7B while 74% of marketers expect to increase their spending on email marketing at the expense of traditional media outlets such as print advertising.
The Company’s Chairman and CEO, Scott Frohman, has a successful entrepreneurial track record of establishing and growing businesses which end up being acquired. His experience includes founding and serving as CEO of National Lead Services, Inc., which was acquired by Seisint, Inc. Seisint operated as a wholly owned subsidiary under the name eDirect, which later purchased 24/7 Mail and Naviant, with the latter serving as its corporate identity until it was sold for $135M.
Mr. Frohman then executed the same sales model at Seisint, which was sold the following year to Reed Elsevier for $780M. He also served as a consultant for Verid Identification and guided the Company’s marketing initiatives for their web-based identity verification process before they were acquired by EMC Corp. [EMC: 19.60, +0.45 (+2.35%)] for over $120M. Mr. Frohman then co-founded and served as the CEO of Health Benefits Direct [HBDT: 0.00, N/A (N/A)] and grew the Company to more than 250 employees across five states.
OPMG represents a speculative growth opportunity for investors in the high risk/reward micro-cap space. The Company has a recurring revenue model with monthly subscriptions ranging from $700-$50,000, which includes three levels of ESP services (full service, consulting, and stand-alone software). With a market cap of about $18M at a closing price of 30 cents, OPMG is trading like its name – as a call option on the rapidly growing space of email, mobile, digital, and Internet marketing as companies decrease their ad spending on traditional media outlets such as print, television, and radio.
- Mike Havrilla
Disclosure: No positions.
The Following Stocks Were Mentioned In This Article: DELL, DIS, EMC, HBDT, OPMG, SNY, T
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