Since the beginning of the year, CrowdGather shares have been extremely volatile with CRWG shares up 188% year to date. A lot of the activity could stem from momentum investors and short term day traders that are trying to make quick profits from a rising stock. CrowdGather is the leading forum network on the Internet, and is starting to get significant traction with consumers. Long term investors should focus on the Company’s compelling fundamentals and not the market action of the stock.
From its inception, Sanjay Sabnani, CrowdGather’s CEO and Founder, strategic vision was to build one of the great companies on the Internet. His initial long term plan was to take the Company public for the purposes of consolidating the very fragmented forum industry under one platform. His ultimate goal is to make the CrowdGather’s network the world’s premier online forum based communities on the Internet.
The Company is beginning to succeed in executing on Sanjay’s initial plans for the Company. As of December 2011, the Company reported that its network of sites generated approximately 220 to 225 million monthly page views and 16 to 18 million monthly unique visitors. In addition, including the impact of the September 2011 Yuku.com acquisition, approximately 23 million users have registered to date on CrowdGather network sites, with 60 million total discussions comprising over 1.2 billion individual replies. That compares to 12.3 million monthly page views and 1.5 million monthly unique visitors in the same period in 2009.
The Company has now reached critical mass and is embarking on its next phase of its growth. Since March 2011, the Company has been investing in its ad server forum platform which will allow it to improve vertical ad delivery to target specific users of similar interests across the entire network, both branded or hosted forum based web sites.
Currently 80% of the Company’s monthly page views are from its hosted forums, such as Yuku.com, Freeforums.org and Lefora.com, which permit do-it-yourself forum enthusiasts to start online discussions. The Company’s hosted forum sites don’t currently generate significant revenues due to the challenges in aggregating individual discussion sites into vertical channels that advertisers can target.
In order to address this monetization opportunity, the Company is in the process of rolling out its customized ad server forum platform across its network of several hundred thousand Company hosted forum sites .
With the combination of a critical level of users/traffic and the ability to better target ads to specific demographics or niche audience, the roll out of the ad server platform should allow the Company to start generating revenues from its hosted forum sites.
In addition, the technology will allow non Company owned forum sites in the near future, to “migrate” to the platform and sell advertisement on a revenue sharing basis with CrowdGather.
Advertising rates are measured in CPM, an Internet advertising term that stands for cost per thousand ad views. Major Internet sites such as ESPN and Huffington Post can get as high as $20 CPM. Forum sites like the ones CrowdGather operates generally are getting on average of less than $1 CPM.
The ad server technology should allow the company to leverage its rapidly growing network, along with very shortly independent forum owners to generate much higher branded and hosted forum CPM rates.
Advertisers want focused targeted advertisement on a specific subject or demographic. For example if an advertiser wants to create 50,000,000 impressions for an advertising campaign that is targeting males age 24-44, or a specific niche market like technology enthusiasts, the ultimate purpose of the ad server platform is to eventually being able to facilitate such an order.
CrowdGather’s monetization of its Internet forum properties in the first inning, for example last fiscal year the Company did approximately $1,500,000 in total revenues. Approximately $680,000 came from forum revenue, approximately $890,000 came from non-recurring ad service contracts and agency revenue.
Starting in the current fiscal year, the Company is completely focused on forum revenue and has discontinued all its service contracts and agency revenue. The results have been dramatic. In the current fiscal year the Company is on target to generate $1,900,000 in revenue from forum revenue, an increase of almost 300% in forum revenue on significantly increased gross margins.
With the ad server technology coming on stream, revenues should accelerate even further. In addition, advertising rates are a function of how many eyeballs that can be delivered on any one particular campaign. The ad server platform will facilitate the delivery of increasingly larger and larger audiences to potential advertisers, resulting in rising CPM advertising rates and the potential for upside surprises in quarterly revenues in the future.
In the most recent quarter, the Company reported revenues of $550,000 and a loss from operations. For example, if the blended advertising rates across its network of sites were to rise to $2 per CPM. The actually revenues would have been around $1,300,000 and they would be at breakeven from operations.
The shares at the present level are trading at a start up valuation despite being a growth stage company with the potential for upside surprises in revenue.
The Company has successfully created, acquired or developed a fairly significant amount of Internet real estate in the last few years. From a private market value perspective the Internet real estate is valued based on the life time value of its unique users or members.
A review of merger and acquisition activity of Internet User Generated Content properties over the last 12-24 months show the price paid per unique visitor for each respective deal range on the low end at $2.33 by Summit Partners for the acquisition of Answers.com in February 2011 or $3.06 by Quepasa Corp (Amex: $QPSA) for the acquisition of myYearbook in July of 2011. On the high end, Huffington Post was acquired by AOL for $12.60 per unique visitor in February 2011, and Internet Brands was purchased by private equity firm, Hellman & Friedman Capital Partners for $10.32 per unique visitor in September 2010.
Smart money institutions have been buyers of the stock recently and are long term holders. The Company’s two largest shareholders non insider shareholders are the John Hancock Small Cap Intrinsic Value Fund who own 3,950,000 shares, and Highbridge Capital, who own 2,727,272 shares. Both acquired there shares on the Company’s most recent financing at $1.10 and remain long. In addition, it appears that John Hancock has actually increased it position by 1,450,000 shares over the past several months. According to the Company’s S-1 Registration statement filed May 5, 2011 John Hancock registered 2,500,000. As of January 31, 2012, according to John Hancock’s web site, its current holdings in CRWG at 3,950,000.
CEO Sanjay Sabnani is the largest shareholder and currently owns 16 million shares of the Company approximately 27.1 % of the Company’s issued and outstanding stock and has recently been buyer of the stock in the open market between the prices of $.25 and $.94.
In summary CrowdGather’s current price could represent an incredible opportunity. Long term fundamental investors with a high risk tolerance might want to take a look at the stock at these levels.