What made Mobile Embrace plunge on ASX?

Mobile Embrace

MBE Details

Impact from Carrier Billing operations: Shares of Mobile Embrace Limited (ASX: MBE) plummeted 21% to $0.059 on 1 September 2017, after the company posted 13.2% decline in revenue at $52.5 million and 43.2% drop in EBITDA at $5.4 million. Accordingly, the company’s net profit tumbled 67.5% to $1.5 million for FY17, led by $4.2 million depreciation and amortisation charges. The result seems to be impacted by Carrier Billing operations due to external factors. On the other hand, during the second half of FY 2017, the consolidated entity shifted its focus to its marketing operations as a technology-led digital performance marketing company. The marketing business continues to do well and is benefiting from further investment in its underlying proprietary technology as several new brands and data assets have been successfully launched with customer activity and databases building. However, the carrier billing operations were being impacted by external factors, and to manage future earnings risk, marketing activities have been kept on hold while reducing spend across the division.


FY17 vs FY16 Financial performance; (Source: Company reports)
During the year, the company settled the litigation brought against it by GBD Ventures Pty Limited, who was suing Mobile Embrace Limited for $3.537 million for a loss alleged to have been incurred by GBD under a digital video advertising inventory supply agreement with MBE. However, under the settlement judgement was awarded in favour of MBE as neither party was required to pay any amount to the other party. On the other hand, the company acquired C2B Solutions Pty Limited (C2B), a profitable and strategically compelling performance marketing company, for an overall consideration of $6.5 million. The purchase price consists of an upfront consideration of $2.5 million followed by a two-year performance-based earn-out of $2 million in 12 months On Target Earnings (OTE), and $2 million in a further 12 months OTE.
 
Outlook: The outlook of the company seems to be a little hazy with no specifics mentioned with regards to future performance, while MBE expects to recoup in FY18. The company is still putting efforts to capitalise on the investment it has made in strengthening and shifting focus to its performance marketing business unit, and enabling improved EBITDA margin performance and growth. Performance marketing is said to be growing favourably which is being achieved entirely through organic growth initiatives and in-house technology development. The expanding client base covers major industries including utilities, telecommunications, finance, health, travel, insurance, education, entertainment and FMCG (fast moving consumer goods). Some recovery might be there in the stock price going forward based on group’s stride for an improved performance. However, given the recent nosedive movement at the back of the softness in results, we give a “Hold” recommendation at the current price of $ 0.059


MBE Daily chart; (Source: Thomson Reuters)

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