Mobile Embrace Ltd (ASX: MBE) has been dropping quite hard on ASX these days. The stock slipped 13.8% on November 18, 2016 post dropping about 43.14% in the last five days as of November 17, 2016. This decline is driven by investors’ concerns over the recent earnings downgrade announced by the company at the back of challenging conditions in domestic operations. The key highlights of the company market update include:
 
Impact on acquisitions of customers at domestic level: The company’s ability of acquiring customers in Australia has been hit by a one-off event resulting from the impact to several marketing channel partners (owing to telco carrier billing changes). However, MBE has highlighted that the target cost of acquisition is now improving. Accordingly, the company has reduced marketing spend until favourable return on investment is achieved. Further, MBE now expects to have FY17 first half revenue impacted by $3.8 million while EBITDA will be hit by $1.7 million. The Direct carrier billing (DCB) impact and international DCB investment may result in first half EBITDA of >$2 million while revenue is said to be of >$28 million. On the other hand, second half is expected to deliver better results with full year EBITDA of >$8 million and revenue of >$70 million.
 
On-track international DCB operations and exploration of new markets: As opposed to domestic operations, the international DCB operations are said to be on track for 120% growth on prior corresponding period. Q2 FY17 is set to witness 23% revenue growth over Q1 while MBE is diversifying operations through the telco and territory footprint of international roll-out. The group expects to enter two additional new markets shortly with more roll-outs to follow. As a result, MBE expects Q4 exit run rate to be >$5 million.
 
Funding scenario: The company is well funded with $10 million cash at bank even with recent earn-out payments of $6 million.
 
It might be better to wait for some signs of improvements in the domestic operations considering that the company has been primarily impacted by factors in terms of certain compliance changes while performing well in international operations as of now.

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