May 9, 2013
CrowdGather ($CRWG) Offers High Potential at a Great Value for Investors
By Ryan Allway · Thursday, May 9th, 2013
Facebook may have over a billion users and LinkedIn may have over 200 million users, but one-third of all U.S. Internet users and 300 million global Internet users still contribute to online forums. And, while social media services come and go, online forums have withstood the test of time, growing in popularity since the dawn of the Internet in the 1990s.
Looking beyond these raw numbers, forum users are also more influential than the average Internet user: They are 3.5x more likely to proactively recommend a particular purchase; 3.5x more likely to share links about a new product; 2x as likely to share advice offline and in person based on information read online; and, 4x more likely to post online ratings and reviews.
These metrics have made the medium highly desirable for advertisers looking to realize the highest return on their advertising dollars. In fact, while 83% of eMarketer respondents reported successful Facebook campaigns, online forums generated a markedly higher 96% success rate that has outpaced all other forms of social media advertising.
Building a Marketplace
Despite their prevalence and high ROI, online forums are fragmented and difficult to reach for large-scale advertisers. The average online forum generates a cost-per-thousand (“CPM”) rate of just 10 to 80 cents as a result, compared to rates as high as $4.00 to $10.00 for companies like LinkedIn, creating significant room for improvement.
CrowdGather Inc. (OTCBB: CRWG) aims to unlock this potential by building a vertical interest ad network specifically geared towards forums. With its owned forums reaching more than 14 million influential customers already, the company unveiled a proprietary ad network last year to enable third-party forum owners to better manage and monetize their forums.
The ad network marks a transition to a marketplace model over the long-term, much like Google Inc. (NASDAQ: GOOG) for websites or eBay Inc. (NASDAQ: EBAY) for second-hand goods. These self-service, low-friction, high-margin businesses generate consistent revenues and reliable cash flows over time, making the move a favorable one over the long-term for investors.
Trading at a Discount
CrowdGather trades with a market capitalization of around $3 million, which is markedly less than the $14.6 million in shareholders’ equity it reported in January 2013. In addition to trading below book value, the company trades at a lower price-to-sales ratio than many other online advertising and social media companies in the space.
|Price-to-Book (P/B)||Price-to-Sales (P/S|
|CrowdGather Inc. (CRWG)||0.18||1.25|
|Facebook Inc. (FB)||5.48||11.84|
|LinkedIn Corporation (LNKD)||19.94||17.83|
|Yelp Inc. (YELP)||11.81||12.50|
*Data from Yahoo! Finance
These metrics suggest that the company may be trading at a discount to a fair valuation – or at least the valuations seem by many of its peers. With ample room for multiple expansion, investors have the opportunity to not only purchase the stock for its growth prospects, but acquire it at a very favorable price.
CrowdGather’s discounted valuation is likely due to the fact that the company is raising capital and the perception that it’s not yet scalable. But in reality, the capital raise should provide management with the capital needed to scale the business model and reach profitability within a reasonable timeframe.
Furthermore, management indicated that it would use these funds to improve revenues, while continuing to reduce its costs and work towards significantly reducing overhead. By October of 2013, the team expects to reduce operating expenses to a $2.5 million run rate and move the company significantly closer to breakeven, while working to scale its revenues higher.
In the end, CrowdGather represents a unique play on digital advertising and social media, targeting an attractive end market with a promising solution. While the growth hasn’t materialized as fast as some have hoped, investors have the opportunity to acquire the stock at a discount at a time when it has just brought in the growth capital it needs.