A smaller player in the massive mobile payment industry, Miami-based mobile commerce and payment processing company Net Element (NASDAQ: NETE) is corralled with larger companies whose share price and brand recognition often drafts off the momentum of behemoths like Apple, Inc. (NASDAQ: AAPL). As such, standing out in this market takes considerable tactic and potential, being positioned at the right place at the right time, or a sweet cocktail of each.
When Apple’s new Apple Pay service hit the market in early September, the debut triggered a buying frenzy in the mobile payment market, with the exception of Net Element. While shares of most mobile payment providers surged higher, Net Element’s stock price headed south (more on that later), catching the attention of Wall Street Daily chief technology analyst Marty Biancuzzo.
“Well, with a market cap of just $60 million, it’s one of the smallest players in a mobile payment market that’s only getting larger as the number of mobile devices continues to proliferate globally … However, while many of its mobile payment peers have enjoyed riding the wave that Apple Pay created, Net Element shares have dropped recently…,” Biancuzzo noted in an article titled Small Firm Set to Crack Big Mobile Payment Market?
The technology within Net Element’s Unified Payment brand enables merchants to accept mobile and cashless payments. Unified Payment was founded by Net Element CEO Oleg Firer and, representative of the company’s potential, in 2012 was named as Inc. 500 Magazine’s fastest-growing company. The company’s Aptito platform helps restaurants and hotels extend their reach by providing customer engagement and loyalty opportunities via mobile devices.
After noting Net Element’s “rough start” in terms of cash and profit into the mobile payments market 10 years ago, Biancuzzo pointed to the company’s “bright spot”: “an enormous jump in revenue – from $1.4 million in 2012 to $18.7 million in 2013.”
Notably, revenues decelerated 12% in the second quarter due, which the company primarily attributes to operational restructuring at its Russia location. The company was still able to achieve its first quarter of profit, however, with net income of $1.3 million, or $0.04 per share, compared to a loss of $20.2 million, or $0.72 per share, in the comparable quarter of 2013.
Biancuzzo also highlighted Net Element’s tactical debt exchange agreement with Crede CG III, Ltd., which eliminated nearly $16 million of the company’s indebtedness, which will be reflected in third-quarter results, and noted that the move “should obviously give the firm much more financial wiggle room.”
As Biancuzzo put it, “In terms of impact, Net Element is in the right market at the right time.”
On September 17, Net Element announced the alignment of its own point-of-sale (POS) mobile payment technology with Apple’s iPhone 6, iPhone 6 Plus and Apple Watch devices, and the company last week filed a $50 million universal shelf registration (S-3) with the SEC to obtain financing to develop its technology and advanced its overarching business strategy.
So with all the progress, why the so-so stock performance? You may point to lack of market recognition (which the company is increasing); Biancuzzo surmised that it’s partially due to share dilution.
“Part of the reason is the S-3 filing I noted above, which will see a further two million shares of common stock issued at a par value $0.0001 per share … Share-dilution concerns have hammered the stock, but the hit should be temporary, especially given the company’s venture into profitability and the elimination of that $15.8 million in debt from the balance sheet,” wrote Biancuzzo.
Add to that the struggle for brand recognition among larger competition, and Net Element has a challenge on its hands. But it’s not one that CEO Firer, an experienced industry veteran, seems worried about.
In a letter to shareholders earlier this week, Firer said,
“Moving forward, Net Element aims to execute on its initiatives for accelerated growth with sustained profitability. Net Element management and board of directors are committed to reinforcing the company’s underlying business as well as identifying and pursuing strategic opportunities to increase shareholder value.
“For the rest of 2014 and moving into 2015 we intend to explore opportunities and the application of our technologies that will continue to propel Net Element toward its potential in the exciting global mobile payments market.
“My expectation is that 2014 will unlock additional opportunities that will undoubtedly serve to benefit all who are connected to the success of our Company.”
In today’s Wall Street Daily article, Biancuzzo also discussed Net Element’s current revenue streams and the potential benefit it may achieve through implementation of Apple Pay into its own services.
To read the article in its entirety visit http://www.wallstreetdaily.com/2014/10/23/chaos-system-net-element.
For more information on NETE visit www.netelement.com