I get the concept of scalability, and when it works it's beautiful to watch (see APX for instance). But I also notice a high correlation between companies that tout their 'scalability' and companies that never end up making any money. I'm happy with a company that is making a profit at first instance.
The thing that is scalable is their telco relationships. As father of a 7yo who is obsessed with watching YouTube videos on Minecraft made by some 25yo Goober from his flat somewhere the UK (but who also gets about 5m views per weekly video), I am a believer in the 'digital influencer' concept and think CM8 have good prospects of acting as middle man between them and the flow of money. That is all blue sky though, the existing business, even if it stagnates is worth twice as much as the current share price.
I think it pays not to be too snobbish about these things. Of course much of the stuff being sold via subscription appears to you and me to be utter sh*t or a 'waste of money' but have you seen how the other half (or 80%) live? (now I sound snobbish). Ring tones, emojies, games etc are all things people spend money on. It's part of he way many people now interact and socialise. The money is real and more sustainable than the market is giving credit for. You, I and fund managers dont download rubbish on our phone as much, but talk to a 16yo in Sunderland or Liverpool or Staines and you would be amazed what they are happy to waste their money on.
Anyway. I work on the basis that net debt can be eliminated in 6-9 months and you are then left with a company earning (conservatively) $10M ebitda, and say, $6M NPATA and debt free, with blue sky upside and a good story to tell along with management heavily aligned to success. 2.7c eps and a valuation of 25-30c once punters can see a clearer picture without the interest and d/a clouding things as much.
The suggestion that the cap raise was concerning or worrying is a bit unfair. It's hard to justify investing in new opportunities when you can get a guaranteed double digit return by paying down debt. It's understandable that an entrepreneurial type may want to cut short the waiting time by 12-18 months.
Anyway, it may not be a multibagger but it is bouncing along the bottom with a clear path to doubling in price.
CM8 Price at posting:
14.0¢ Sentiment: Buy Disclosure: Held
