As with many past promotions from the folks at Cabot’s Stock of the Month newsletter, they’re comparing their new pick to First Solar, and guaranteeing that the shares will double in a matter of months (or your money back … and yes, that’s the subscription money, not the money you might have lost on the investment).
They’ve made the same “next First Solar” and “guaranteed double” promises about some other stocks in recent months — an odd lot taken as a group, including a shipper and another solar company to go with today’s pick, which is a company that apparently sells Chinese mobile phone apps.
Apps — you can just tell it’s sexy already, right? Well, it sounds impressive in the teaser, as do they all:
“Like First Solar, this company is also riding a huge wave of profit growth … and it’s in the world’s most profitable high-tech sector on planet: China mobile phone applications.
“That’s a huge claim I know. But not when you look at the hundreds of millions of dollars of Apple has been making selling iPhone applications.
“Only the China market for mobile phone application is much, much bigger than that of the U.S.–all because China has millions more (and more powerful) smart phones than the Apple juggernaut.”
We’re told that this company has jumped 279% since it’s ipo back on December 8, at a time when several Chinese tech IPOs were getting attention (including two others that aren’t part of this tease, Youku (YOKU) and Dangdang (DANG), both of which are far larger).
And then we get a bit more detail:
“It boasts a 50% market share, more than three times as large as its nearest competitor. And it’s achieved this not necessarily because its store is better, but because it’s worked with closely smart phone manufacturers, getting its store pre-loaded on handsets; the app store is currently found on a whopping 6,600 handset models, produced by some 450 handset companies (there’s an industry ripe for consolidation!).
“As a result, the app store has more than one billion user visits per month and these visitors download more than 250 million apps per month!”
So who is this? Well, though it’s a pick of Cabot Stock of the Month, it has also already been written about publicly by Cabot’s China guy, Paul Goodwin — this must be Sky-Mobi Limited (MOBI).
Goodwin’s article about them from about a month ago is here if you’d like to see it — I don’t know that he’s actually touting the shares for his historically successful China and Emerging Markets Report, but he does say they might be a “great speculation.” But as far as I can tell, the story ain’t really about “smart” phones for Sky-Mobi … at least, not yet. It’s about providing “smartish” apps and a platform for dumber “feature” phones.
Their strategy is to build relationships with users before people get smart phones — they’re selling apps to the less-powerful “feature phones” that don’t have the internet, email and flexible application tools that you might be used to from your Android or Apple phone (though some of them do have fairly large screens or touch screens, imitating the look if not the power of smart phones), operating an app platform and payment system for users of lower cost phones.
They seem to say that they’re hoping to keep customers as they move up to build an app store for Android as well, but they are really not addressing the smart phone market right now. They describe their user base as lower income, young people (16-24) who have no regular computer access, and they say they’re trying to build sticky relationships with these users through their social applications, games, and flexible payment systems (from their last conference call it sounds like they’re trying to build a mobile-only social network as a core of their future strategy, since social networks can engender loyalty).
They report that they have by far the biggest app store for these “non-smart” phones, and in particular that they’re far larger than the app stores offered directly by the mobile carriers, but there is at least some competition in their niche.
There’s been some controversy about MOBI recently, as the shares have been driven higher on enthusiasm for their growing revenue and potential earnings, and a big short position has materialized along with that rapid growth. Accompanying that short position has been the typical (for small Chinese stocks, at least) aggressive short analysis from bloggers and Seeking Alpha contributors — particularly Citron Research, in this case, which issued a critical report on them recently and pegged them with a $3 price target and then updated it (still negatively) after the company responded with a special conference call.
I don’t know anything about Sky-Mobi, to be honest — I haven’t researched the company very much other than reading a few articles today. My impression from what I’ve read is that they’re trying to build a business with very young folks on the decidedly non-sexy (compared to Apple and Androi and smart phones) end of the spectrum, particularly low-income migrant workers in their teens or early 20s, and then somehow keep a handle on these folks by developing strong user communities for them as they, hopefully, move up the food chain. I don’t know whether they’ll keep any kind of competitive advantage that they have in this niche, or whether they’ll be able to turn it into a strong position as phones get smarter — or whether they’ll get squeezed by the dominant mobile network companies (like China Mobile) in any way.
The Citron folks — who have done good research and made accurate short predictions at least sometimes in the past, though I don’t know their full record — are making the argument, it seems, that they’re a “buggy whip” business that’s destined to wither away. I suppose could be true and it does make some logical sense — but it does also seem possible that they could keep bringing in growing revenue for years even if they can’t penetrate the smart phone market.
After all, even here in the US I think smart phone penetration is not that much more than half of the population, and it’s reportedly less than 20% in China. There may well continue to be a decent long-term business in catering to the younger and poorer — after all, companies like AOL and Earthlink kept making tons of cash selling dial-up service for many years after they were called “obsolete” by investors. Citron makes other arguments, too, including that the company is lying, is overvalued, and was an IPO bust (before it took off shortly thereafter), but you can read all that in their report, listen to the company’s response and analyst questions in their conference call yesterday (that call and their other calls and presentations are here), and decide for yourself. The market, at least, seems somewhat reassured by the conference call and the shares have stabilized a little bit, though they’re still down 30-40% from the peak, which happened to come last week … and, at around $14, still up about 200% from the lows of early January.
Cabot’s teaser ad first came through last week, when the stock was in the low-$20s before the Citron attention, so, to be clear, I have no idea whether or not the Cabot folks still like ’em — or whether they stand by last week’s teaser target of a double to somewhere in the $40s. But it’s certainly a timely and closely covered stock this week, so I thought you might like to take the chance to have a look if you haven’t already.
Their fiscal year ends with the next quarterly report next week, during which analysts are expecting a 28 cent profit to be reported for the 12 months (if they hit that, it would mean a trailing PE of about 50), and the three analysts followed by Yahoo Finance are expecting dramatic earnings growth in the year to come, with a forward PE of about 20 on 69 cents of earnings per share in FY 2012 (that’s not a lot of analysts, and I don’t know how much weight we should put on their estimates given the newness of the company as a public entity). If those numbers turn out to be true and the company is right about their continuing opportunity for growth, it’s probably a reasonable valuation — though of course, if Citron is right about them in saying that they’re destined to be worth just th ethe valuation is still very high. Your money, your call … and as always, we want to know what you think about Sky-Mobi, or Citron, or Cabot … or, really, whatever else. That’s why we have such a friendly little comment box below.
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