“The low valuation of the company comes with considerable upside, which could provide investors with returns of hundreds of percent over a short time period.”
Interested? Well, this is an extract from a presentation made last week in the City. It was attended by some of the brightest investors – and me – and they have already dipped their hands into their pockets to give the company some of the $10m that it needs to further its plans.
No doubt you are aware of the fancy valuations put on businesses in the social networking space. Facebook (Nasdaq: FB) is valued at $34bn, Linkedin (NYSE: LNKD) at $10bn. Instagram, a social network whose users take and share pictures using their mobile phones, was sold to Facebook last year for $1bn. Microsoft paid $1.2bn for Yammer, which builds targeted social networks for internal use for corporations.
Watch football, go fishing
The latter is comparable to the company I want to tell you about today. YuuZoo’s basic proposition is this: if you enter a social network, you want to find a crowd of like-minded individuals. So if, for example, you follow Sunderland Football Club – as a YuuZoo client – you will happily spend your time watching Sunderland videos, chatting to fellow fans and eyeing up the merchandise in the club shop.
Or if you are a fisherman, you will want to chat about the one that got away, drool over photos of squid, and check out the best place to cast your line.
Social networking is progressing from being a free for all to a segregated world in which we only talk to the people we want to. YuuZoo builds these special interest sites, with one particular feature that is essential to their success.
Each of these social networks is optimised for the small screen. Today, there are one billion feature phones in use. The number is going up all the time and increasingly users are logging on to the internet from these pocket devices.
So, any social network must be optimised for use on feature phones. YuuZoo can format these sites for over 3,000 phone models, although the sites are also accessible on a PC or, thanks to an app on Samsung’s Smart TV, via the TV screen.
Expected revenue of $594m in 2015
YuuZoo makes its money in various ways. First of all, it charges a fee to of around $150,000 to build the site. Next, although the client – Sunderland FC for example – owns the site, YuuZoo will take a cut of the revenue generated, whether from advertising or from e-commerce.
Because users are by definition interested in the subject matter, they will tend to linger on the site, making it an attractive proposition for advertisers. YuuZoo runs its own payments platform and because it collects the money before giving 70% to the client and keeping 30% for itself, it is in control of the finances.
Co-founder Ron Creevey, already a successful internet millionaire, emphasised the importance of seizing the moment. This is a fast moving world and in order to get the product out there before the competition can react, it is building a network of franchisees.
I am always a little wary of this business because revenue booked from the sale of a franchise is not the same as revenue from the product itself. All the same, the financial projections are stunning. For 2012, YuuZoo has recorded unaudited revenues of $32m. It expects revenue to rise to $84m this year, $284m in 2014 and $594m in 2015. The progression of earnings before interest, tax, depreciation and amortisation (EBITDA) is $21.4m this year, $99.4m in 2014 and $232m in 2015 and these numbers, at least YuuZoo claims, are based on some conservative assumptions.
YuuZoo is currently trying to raise $10m at a price that values the business at $75m, less than nine times 2012 earnings. Later this year it intends to list on the Singapore Stock Exchange, via a reverse take-over, at a projected valuation of $350m. And after that, if you believe it, the sky is the limit.
Still, I’d prefer not to recommend that you put a big chunk of money into a private company with no immediate means of getting it back. But there are interesting plays in this very exciting area. And I’ll talk more about these in future issues of Penny Sleuth and Red Hot Penny Shares.
• This article is taken from Tom Bulford’s free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
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