Mobile Embrace Ltd (ASX: MBE) is a mobile marketing and payments company seeking to disrupt the way businesses interact with their customers. It provides an end-to-end user experience by connecting customers with advertisers to help businesses monetise their products and boost returns.
To put it another way, Mobile Embrace integrates advertisements into mobile applications allowing developers to earn money whenever an advertisement is clicked on. The company earns revenue by facilitating a payment gateway between two parties and taking a commission off the top.
Financial results
Mobile Embrace operates in the nascent mobile advertising and payments space. With mobile usage predicted to double by 2018, the company has strong tailwinds to revolutionise mobile payments and advertising and thus capitalise on its first-mover advantage. Today's results highlight Mobile Embrace's potential with its two core divisions performing solidly.
Mobile Embrace reported strong quarterly results, with revenue up 105% to a record $12.1 million, largely thanks to its payments division generating growth of 20% month-on-month. Pleasingly, earnings before interest tax, depreciation and amortisation (EBITDA) were up 1,500% to $2 million (from $0.13 million), indicating a sharp improvement to revenue retention. With the bulk of investment now behind it, the company's EBIDTA should increase exponentially making it a great time to buy into this speculative stock.
The challenge ahead
Today's results confirm Mobile Embrace's acquisitive strategy is on track. The recent acquisitions of Vizmond Media, Marketing Punch Ltd and its 31% stake in Clipp have created the foundations to deliver earnings growth for the next financial year. However, last week's announcement of a disputed claim by one of its suppliers may provide uncertainty in the months ahead.
The claim is for $4 million and thus has the potential to significantly damage Mobile Embrace's earnings momentum and cap shareholder returns in the medium-term. Accordingly, the challenge for management is to continue earnings momentum through disciplined execution of strategy and diligent management of this lawsuit. This is, in my opinion, vital for future share price upside.
Foolish takeaway
Mobile Embrace is a risky investment proposition because of the nature of its operations. The company has grown exponentially over the last quarter and continues to deliver record earnings growth throughout all its core businesses.
The recent legal claim has cast uncertainty over the company's short-term affairs, but based on today's profit results, the company has a bright future making it one speculative stock to keep an eye on.
