|Shares Out. (in M):||42||P/E||n/m||86.0x|
|Market Cap (in $M):||836||P/FCF||n/m||60.0x|
|Net Debt (in $M):||-22||EBIT||0||15|
We believe that Motricity ("MOTR") is a timely short opportunity with significant downside potential (potentially terminal). I will keep this write-up brief as this is timely and may not be for everyone since borrow is tight. In the past two months, MOTR's stock price has increased by 150%, largely on the back of two vague press releases and a "speculative buy" recommendation from Jim Cramer last week.
MOTR, which IPO'd in June, provides a basic software platform that allows wireless subscribers who do not have smart phones to access mobile data, including browsing the Internet, sending and receiving email, updating social network sites, purchasing ringtones, etc. By way of background, Motricity as it exists today was formed when the company purchased the mobile division of InfoSpace for $135mm in cash in December of 2007. Before this acquisition, MOTR was a small mobile services company with ~$30mm in annual revenue. InfoSpace Mobile's legacy mCore platform is currently MOTR's principal product offering.
The company boasts a market capitalization of approximately $835mm and an enterprise value of $815 million (~6x what it paid for InfoSpace Mobile), despite playing in a competitive industry with strong secular headwinds (as smartphones proliferate), never having generated positive GAAP operating profit and having massive customer concentration (AT&T and Verizon account for over 75% of revenues).
The bull case espoused by the sell-side (primarily investment banks that ran the IPO) is simple - mobile data usage is growing secularly and should be able to drive incremental revenue from both existing wireless carrier customers and new contract wins (primarily international).
We find MOTR to be a compelling short for the following reasons:
Simply put, we think this is a timely short with the potential to be a zero or near zero in the coming years. Several factors have occurred to cause this company to be perceived as a high growth, mobile play when in fact it is a barely profitable company that is in the process of becoming technologically irrelevant.