Miami, FL – July 14, 2019 (EmergingGrowth.com NewsWire) — EmergingGrowth.com, a leading independent small cap media portal with an extensive history of providing unparalleled content for the Emerging Growth markets and companies, reports on FingerMotion (OTCQB: FNGR).
FingerMotion’s (OTCQB: FNGR) latest breakthrough is setting the stage for near term explosive growth in Gross Transaction Volume (GTV) and profitability. Investors have yet to grasp the magnitude of their latest press release. The recently announced China Unicom deal with the top 3 Chinese E-commerce giants should serve as a wakeup call to investors that FNGR’s commoditized top-up license has real value to unlock doors in the E-commerce world. Their latest deal with China Unicom (NYSE: CHU) underscores the potential. FNGR morphed from one of five licensed top-up vendors to a joint venture partner with the 2nd largest telecom in China. In doing so they gained access to managing the E-commerce stores on the 3 largest platforms including the coveted Tmall which is owned by Alibaba (NYSE: BABA). Tmall and JD.com (NYSE: JD) comprise more than 85% of the total B2C E-commerce in China and the Unicom deal hands FNGR access to this market.
Portal Deal Explodes User Base
This latest portal deal gives them the creative license to build out the E-commerce store and monetize the user bases of CHU, BABA, JD, and PinDuoDuo (NYSE: PDD). If that wasn’t enough they were also empowered to sell pretty much all the services that CHU has to offer, including broadband internet. Their latest portal agreement with CHU gives them 535 million mobile and 4G users from China Unicom, 700 million active users from Tmall and Taobao, 352 million user from JD.com and 419 million users from PinDuoDuo for a total combined user base of over 2.0 billion users.
No Capital Needed for Inventory
The sweetest part of the portal deal is the ready access to inventory. This makes the deal with CHU very scalable. The primary function of FNGR is to market and promote the site and move goods and services and handle any customer service related issues. Promotional deals are running rampant on E-commerce portals but FNGR may have a significant advantage in this war for the user. Sifting through the latest 10-K investors will find out that FingerMotion’s subsidiary JiuGe started off as a data marketing company first and foremost.
Metadata Enables Surgical Marketing
They are also under regulatory scrutiny of the data protection regulations in China. This means safeguarding the data, but there is a treasure trove of metadata coming in that could make them lethal in terms of targeting customers. Take a simple example of an individual that tops up weekly instead of monthly and essentially consumes more data than his peers. This person could be profiled. They pay their bills with weekly precision and they consume a lot of data, so they either have a good paying job or play video games. Next time they log into the portal they are offered a video game promotion and they bite. This user had been flagged to like video games. What if he responded to an offer for car insurance? Then the portal would assume the user has a car. Over time this profiling can grow just like when you search on google for bowling balls and then bowling balls magically show up in all the articles you are reading for news. Surgical marketing ultimately leads to better conversions and eventually brand loyalty. “Big Data” is also something that China Unicom mentions multiple times in their presentations and filings so it’s coming or it’s already arrived.
The South China Morning Post delivered an excellent overview of the Chinese consumer and landscape in their article titled “Chinese consumers buy more domestic brands in midyear 618 shopping festival as trade war rages on.” Some highlights of the article showed a 71% year on year increase of domestic smartphone brands. This trend could be a boon for FNGR as it doesn’t need to purchase any inventory to stock like all its competitors. It has the financial might of the 10th largest telecom company behind them. The article also comments on PDD’s challenge to take on rivals BABA and JD who‘s founder Colin Huang accused of “forced exclusivity” in the marketplace. The article also describes China’s lower-tier consumer has “become a more active e-commerce shopper.” PDD is targeting these lower-tier markets. No matter how these battles shake out the clear winner will be the company that benefits from overall growth in the sector, which is FNGR.
Forward Revenue Growth
In June the company updated investors on their annualized run rate of $600 million based on the combined users of PDD plus 40 of their e-commerce portal customers. The company based this projection on a user base of 385.5 million plus users. Using conservative estimates and factoring in the 40 E-commerce portals originally signed, FNGR was effectively marketing to 500 million users at the time of the last announcement. The latest deal with these top 3 E-commerce giants has a combined user base of 2.0 billion. This represents 3X the number of users, and should increase the run rate 3 fold to $1.8 billion in Gross Transaction Volume (GTV).
The latest deal with China Unicom has set the stage for further growth in valuation. The first coverage of the stock in January 2019 mentioned that these E-commerce stocks could trade at 2X GTV. The current market capitalization is highly discounted to $175 million which represents 5.0% of the expected GTV ($1.8 billion) of an E-commerce company. With 25.3 million shares outstanding and a conservative .25 multiple (instead of 2.0) to GTV the projected stock price could reach $36/share. Given current metrics, the stock is severely undervalued even though it has nearly doubled since it was first covered. There is also a positive trend in valuation as the company grew from $87 million to $175 million in the past 6 months.
The biggest risk to the company is now organic growth. E-commerce companies need to scale quickly. The company has been working for months to find debt or equity that allows them to finance their top-up business. If out the desperation they turn toward a toxic funder it could alter the trajectory of the stock which has been upward sloping given their stanch resistance to this type of structural finance. The risk of dilution is possible, but unlikely given how close they are to profitability. If a debt or equity deal is structured, it should be on friendly terms to investors.
It’s important to point out the huge derisking that just happened by inking this deal with CHU. The biggest risk to the company was landing these type of portal deals that are able to perpetuate growth. They are now effectively on 3 of the 4 largest E-commerce portals in China, and through the process of elimination Tencent Holding Ltd. (OTCPK: TCEHY) is the final hold out that is still without a top-up provider. This portal deal effectively elevated them to the largest top-up provider in China, with almost monopolistic type power.
This portal deal with China Unicom is a real game changer for FingerMotion. It positions them to market to a user base of 2 billion. Should they get any traction the sky is the limit. They have a commoditized top-up business that appears to be growing very quickly, but by their own acknowledgement is limited by capital. They also have a growing SMS business that allows for targeted marketing messages in an SMS market that is still growing in China. The most exciting development is their announcement of a scalable portal store on 3 major e-commerce platforms Alibaba’s Tmall, JD.com, and PDD. For profitability all this store requires is a solid targeted marketing campaign. Assuming they have a 50/50 joint venture with China Unicom and are able to maintain 10% gross margin on the hardware business, they will net 5% of these smartphone sales. This is an explosive win for profitability of the fledging company in a universe of E-commerce giants like PDD and JD that are still operating in the red.
FNGR has effectively tripled its run rate on this deal, yet the stock hasn’t responded. The company also has created a legitimate pathway to profitability without taking in any dilutive financing in the process. In addition, FNGR exceeded expectations and delivered on both BABA and JD.com despite its promise to ink another deal with a top-tiered E-commerce portal. They mentioned that even another portal deal is still in the works. The company is an excellent candidate for uplisting to the NASDAQ and simply needs a bump in the net capital to do so. The market reaction to the news was misleading and the stock represents a solid value play in the E-commerce sector.
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