The Next Big Company Putting Digital Content on Full Display
Digital content is KING… long live the King!
… And companies like RMG Networks (Nasdaq: RMGN $4.34) are finding new ways to promote, display and monetize digital content like never before (more on them later).
As consumers, we continue to live in some exciting times – everyday we continue to have the opportunity to experience how digital content impacts us. It educates us. It inspires us.
Digital content has truly has transformed how we approach every-day tasks such as fixing a sink and unplugging a toilet; to discovering new hobbies like flying drones and stand-up paddle boarding; to our entertainment like the latest YouTube stars and exclusive online show.
AND… we have untethered access to it on our desktops, laptops and smart phones. All of it is right there, available at our fingertips when we want it, 24/7.
Yet, the business environments continue to play “catch-up” with us consumers.
For example, there are still “old world marketing” platforms that stand to benefit greatly with the adoption of digital content.
Well, one of the last bastions of “old world marketing” is the billboard and signage industry. As other direct consumer marketing mediums have gone thru digital transformations, the billboard and signage industry has, for the most part, lagged behind the digital times and static ads on billboards and signs continue to litter the landscape.
Here at The Money Street, our team senses a MASSIVE OPPORTUNITY on the horizon.
First off, we are seeing digital content is finally being incorporated into billboards and signs.
Secondly, we are seeing how specific industries, e.g. property owners in the multi-trillion dollar retail and hospitality sectors, have adopted and are using digital signage marketing to target “on-site traffic” of consumers who are at their properties. They are using digital signage as a combo “acquisition AND retention” tactic.
As consumers have made the effort to get and arrive at a specific retail or hospitality property, these “prospects” are typically more qualified to spend than those who are not at their properties. From digital wayfinding to digital experiential ads, they are being engaged with digital signs that EDUCATE AND INSPIRE to encourage them to spend their dollars.
And as you’ve come to know us at The Money Street, we always look for “tipping point” opportunities that can translate to massive investment opportunities.
Thus, we see digital signs as a “new transformation sector” for the Money Street and our followers.
We ESPECIALLY LOVE it when an “old line” industry has the potential to be MASSIVELY DISRUPTED with technology. To us, this creates MASSIVE TIPPING POINTS for INVESTMENT OPPORTUNITIES.
And it becomes even more exciting to us when we can identify a target investment company, like RMG Networks (Nasdaq: RMGN $4.34), who has the potential to propel its business customers into further tapping into and shaping consumer-spending behaviors, and that we consider the company POSITIONED FOR a BREAKOUT.
Digital Signage Industry Shows Signs of Massive Growth
Before we jump into a deeper look at RMG Networks (Nasdaq: RMGN $4.34), we think it’s good to have an understanding of the digital signage industry.
According to a September 2017 research report by Grandview Research, the global digital signage market was estimated at USD $16.044 Billion in 2014 with a target growth of USD $31.714 Billion in 2025.
KEY GROWTH drivers that will be responsible for almost DOUBLING the industry over the next few years include:
Attention getters – Increasing demand for the digital promotion of products and services to effectively attract the attention of target audiences
Increased longevity of ads – Need to move away for short-lived print marketing ads
Technology innovation – On-going technological innovations of digital signage hardware and software that have advanced the quality of digital advertisement content
Enhancing consumer experiences – Expansion of how digital content can be used to add value to the consumer experience
Here is a recent article that lists 5 trends for the digital signage industry in 2018. We have already started seeing many of the trends being implemented, which bodes very well for the future of the industry.
As part of our industry research, we look at brands that are implementing the various innovations to further validate our views and assumptions.
We found an interesting read in Fortune Magazine about how Coca Cola has turned to cloud-based digital signage solution (with the help of some Google technologies) to help fuel targeted consumer engagement.
We view Coke as one of those historic consumer brands that needs to continue to be progressive or risk losing market share. Given its history and global footprint, we believe that in today’s consumer-centric environment, consumer brands like Coke have to WORK A LOT HARDER AND SMARTER, to keep people’s attention. Thus, to see Coke embrace digital signage advertising gives us a key metric to further validate the market opportunity.
…OH, and YOU MUST TAKE A LOOK this video of an example of how digital signs can make some lasting impressions:
As another point of reference, some of our team members attended the 2018 Consumer Electronics SHOW (CES) back in January. While there, they were able to witness firsthand some of the technological innovations that are making (and will continue to make) massive impacts on the digital signage industry.
Aside from all of the incredible hardware innovations that are happening and the evolution of display technologies in LCD, LED, OLED, and Super AMOLED, our team was excited to see the massive presence of SaaS, cloud, AI (artificial intelligence) and ML (machine-learning) service offerings that were highlighted all throughout CES.
To us, these service offerings represent the “plumbing and foundation” that needs to exist in order to support the front-end facing engagement strategies of digital signs – just take a look back at the Fortune article on Coke to see all of the “plumbing “ that was supported by Google Chrome, Google Cloud and DoubleClick.
The hardware and software innovations reinforce how brands and companies can now be supported of their digital signs marketing strategies to be more targeted and personalized in order to effectively deliver enhanced consumer engagement that then translates to increased purchasing behavior.
Companies Who Get Digital Signage
Below are some main players in the digital signage industry that are worth taking a look to see what they’re doing. Although their share prices are very high and way above our price criteria to get in on, they do provide further validation of what’s happening in the industry:
Lamar Advertising (Nasdaq: LAMR)
Market Cap: $6.549B
Lamar Advertising Company Announces Fourth Quarter and Year End 2017 Operating Results
“We delivered AFFO per share of $5.05 for 2017, exceeding the top end of our revised guidance,” said Chief Executive, Sean Reilly. “We’re optimistic about a stronger 2018 with improved sales growth and continued control of expense growth translating to a further increase in AFFO.”
Fourth Quarter Highlights.
Consolidated acquisition-adjusted expense growth decreased 0.4%
FFO increased 10.6%
AFFO increased 5.3%
Diluted earnings per share increased to $0.88
Diluted AFFO per share increased 4.5%
Closed 11 Acquisitions for an aggregate $177.4 million cash purchase price
Fourth Quarter Results
Lamar reported net revenues of $398.5 million for the fourth quarter of 2017 versus $386.7 million for the fourth quarter of 2016, a 3.0% increase. Operating income for the fourth quarter of 2017 increased to $120.0 million as compared to $115.4 million for the same period in 2016. Lamar recognized net income of $87.2 million for the fourth quarter of 2017 compared to net income of $80.5 million for same period in 2016. Net income per diluted share increased 8.6% to $0.88 from $0.81 for the three months ended December 31, 2017 and 2016, respectively. Adjusted EBITDA for the fourth quarter of 2017 was $178.4 million versus $173.6 million for the fourth quarter of 2016, an increase of 2.7%.
Cash flow provided by operating activities was $186.4 million for the three months ended December 31, 2017, an increase of $2.4 million as compared to the same period in 2016. Free cash flow for the fourth quarter of 2017 was $112.3 million as compared to $111.1 million for the same period in 2016, a 1.2% increase.
For the fourth quarter of 2017, Funds From Operations, or FFO, was $140.0 million versus $126.6 million for the same period in 2016, an increase of 10.6%. Adjusted Funds From Operations, or AFFO, for the fourth quarter of 2017 was $135.8 million compared to $128.9 million for the same period in 2016, an increase of 5.3%. Diluted AFFO per share increased 4.5% to $1.38 for the three months ended December 31, 2017 as compared to $1.32 for the same period in 2016.
Acquisition-Adjusted Three Months Results
Acquisition-adjusted net revenue for the fourth quarter of 2017 remained relatively the same as Acquisition-adjusted net revenue for the fourth quarter of 2016. Acquisition-adjusted net revenue excluding Puerto Rico for the fourth quarter of 2017 increased 0.7% as compared to the same period in 2016. Acquisition-adjusted EBITDA for the fourth quarter of 2017 increased 0.7% as compared to Acquisition-adjusted EBITDA for the fourth quarter of 2016. Acquisition-adjusted EBITDA excluding Puerto Rico for the fourth quarter of 2017 increased 1.8% over the same period in 2016. Acquisition-adjusted net revenue and Acquisition-adjusted EBITDA include adjustments to the 2016 period for acquisitions and divestitures for the same time frame as actually owned in the 2017 period. See “Reconciliation of Reported Basis to Acquisition-Adjusted Results”, which provides reconciliations to GAAP for Acquisition-adjusted measures.
Twelve Months Results
Lamar reported net revenues of $1.54 billion for the twelve months ended December 31, 2017 versus $1.50 billion for the same period in 2016, a 2.7% increase. Operating income for the twelve months ended December 31, 2017 was $455.4 million as compared to $439.0 million for the same period in 2016. Lamar recognized net income of $317.7 million for the twelve months ended December 31, 2017 as compared to net income of $298.8 million for the same period in 2016. Net income per diluted share increased 5.9% to $3.23 for the twelve months ended December 31, 2017 as compared to $3.05 for the same period in 2016. In addition, Adjusted EBITDA for twelve months ended December 31, 2017 was $671.4 million versus $657.5 million for the same period in 2016, a 2.1% increase.
Outfront Medita Inc (Nasdaq: OUT)
Market Cap: $2.691B
OUTFRONT Media Reports Fourth Quarter And Full Year 2017 Results
“Revenue growth and tightly managed costs drove Adjusted OIBDA up 3.3% and AFFO up 6.7% for the quarter,” said Jeremy Male, Chairman and Chief Executive Officer of OUTFRONT Media. “As we look at 2018, stakeholders should expect continued growth in AFFO and a rapid expansion of our digital transit displays. We will also see progress toward the commercialization of our new audience and selling platform – which will bring our existing locations to life with new data, insight and measurement for our advertising clients.”
Fourth Quarter 2017 Results
Reported revenues of $401.3 million increased $3.9 million, or 1.0%, for the fourth quarter of 2017 as compared to the same prior-year period. On an organic basis, revenues of $398.3 million were flat.
Reported billboard revenues of $276.4 million decreased $0.1 million due primarily to a decrease in average revenue per display (yield) and the net effect of new and lost billboards in the period, partially offset by growth in revenues from digital billboard conversions and the acquisition of digital billboards in Canada. On an organic basis, billboard revenues were down 1.4% due primarily to a decrease in yield and the net effect of new and lost billboards in the period, partially offset by growth in revenues from digital billboard conversions. The decrease in yield is due primarily to a reduction in national advertising revenues, partially offset by an increase in local advertising revenues.
Reported transit and other revenues of $124.9 million increased $4.0 million, or 3.3%, due primarily to the net effect of won and lost franchises in the period, partially offset by a decrease in yield. On an organic basis, transit and other revenues increased 3.1% due to the net effect of won and lost franchises in the period, partially offset by a decrease in yield. The decrease in yield is due primarily to a reduction in national advertising revenues, partially offset by an increase in local advertising revenues.
Total Operating expenses of $217.4 million increased $2.2 million, or 1.0%, due primarily to transit franchise expenses related to our Massachusetts Bay Transportation Authority (“MBTA”) transit contract, higher expenses related to our Sports Marketing operating segment and the impact of the acquisition of digital billboards in Canada, partially offset by lower transit franchise expenses under the terms of our new New York Metropolitan Transportation Authority (“MTA”) transit franchise agreement. Selling, General and Administrative expenses (“SG&A”) of $67.2 million decreased $2.0 million, or 2.9%, due primarily to lower professional fees, partially offset by the impact of higher expenses related to our Sports marketing operating segment.
Adjusted OIBDA of $121.1 million increased $3.9 million, or 3.3%.
- PR Newswire•February 27, 2018
Alliance Data Systems Corporation (Nasdaq: ADS)
Market Cap: $13.203B
Alliance Data Systems Corp (ADS) Files 10-K for the Fiscal Year Ended on December 31, 2017
For the last quarter Alliance Data Systems Corp reported a revenue of $2.1 billion, compared with the revenue of $1.8 billion during the same period a year ago. For the latest fiscal year the company reported a revenue of $7.7 billion, an increase of 8.1% from last year. For the last five years Alliance Data Systems Corp had an average revenue growth rate of 16.9% a year.
The reported diluted earnings per share was $14.1 for the year, an increase of 92.1% from previous year. Over the last five years Alliance Data Systems Corp had an EPS growth rate of 11.8% a year. The Alliance Data Systems Corp enjoyed an operating margin of 21.32%, compared with the operating margin of 17.73% a year before. The 10-year historical median operating margin of Alliance Data Systems Corp is 21.93%. The profitability rank of the company is 9 (out of 10).
At the end of the fiscal year, Alliance Data Systems Corp has the cash and cash equivalents of $4.2 billion, compared with $1.9 billion in the previous year. The long term debt was $14.9 billion, compared with $10.1 billion in the previous year. The interest coverage to the debt is 2.9, which is not a favorable level. Alliance Data Systems Corp has a financial strength rank of 4 (out of 10).
At the current stock price of $245.66, Alliance Data Systems Corp is traded at 17% discount to its historical median P/S valuation band of $296.15. The P/S ratio of the stock is 1.78, while the historical median P/S ratio is 2.15. The intrinsic value of the stock is $319.17 a share, according to GuruFocus DCF Calculator. The stock gained 1.22% during the past 12 months.
Adjusted OIBDA of $121.1 million increased $3.9 million, or 3.3%.
General Growth Properties (Nasdaq: GGP)
Market Cap: $20.54B
Netflix and one-time penny stock GGP are among biggest winners since bull market began 9 years ago
United Rentals and streaming giant Netflix are the second and third best-performing S&P 500 components since the end of the financial crisis, surging more than 5,500 percent each.
Since the bull market started, the S&P 500 is up around 300 percent.
U.S. stocks have done extremely well since the end of the financial crisis, but real estate investment trust GGP has left everyone in the dust.
GGP , which invests in shopping centers and changed its name in 2017 from General Growth Properties, is up more than 7,000 percent since the S&P 500 reached its financial crisis closing bottom on March 9, 2009. That makes it the best performer in the benchmark since the bull market began.
GGP closed at 21 cents a share that day. On Thursday, it closed at $21.11.
United Rentals URI and streaming giant Netflix NFLX are the second and third best-performing S&P 500 components since the start of the bull market, surging more than 5,500 percent each.
Friday marks the ninth anniversary of the “Haines Bottom.” On CNBC on March 10, 2009, anchor Mark Haines called the previous day’s close the bottom of the crisis.
On March 9, 2009, the S&P 500 closed at 676.53. Since then, the S&P 500 is up around 300 percent, with consumer discretionary as the best-performing sector.
Discretionary is up more than 550 percent since “The Haines Bottom,” with Amazon AMZN among the best-performing stocks in the sector. The e-commerce giant is up more than 2,000 percent in that time period.
So where do we go from here?
Well, we’ve identified a market opportunity, and then did market research to further validate the market.
We then identified some key players that further validate what happening in the market.
Now it’s time for us to review a hidden gem of a company that we think is worth investment consideration – RMG Networks (Nasdaq: RMGN $4.34).
RMG Networks Displaying the Future of the Industry
As part of our analysis of the landscape of the digital signage industry, we also research identify up-and-coming companies and hidden gems who could be possible target investment candidates.
We believe that RMG Networks (Nasdaq: RMGN $4.34) fits our target criteria, and begs for a position in your portfolio.
Founded in 1980 and with headquarters in Dallas, TX, RMG Networks has been around for close to 40 years. The company has gone through an evolution of its business during this time.
It’s current business offerings are centered on providing intelligent visual communications via a combination of hardware, software and services that help businesses increase productivity, efficiency and engagement through digital messaging.
It accomplishes this by positioning itself as a single-point of accountability for a whole product solution centered on data visualization and real-time performance management.
Although the company has been focused on developing data visualization solutions for enterprise communications and supply-chain needs, what really has got us excited is it’s recent success in content messaging via digital signs.
Here are our key takeaways on why we think that RMG Networks (Nasdaq: RMGN $4.34) is an attractive investment opportunity:
Experienced management team – The company’s executives have experience to navigate through its next growth phase
Next generation of products – SaaS-based Korbyt is an attractive, next gen software for targeted content marketing and messaging opportunities
Immediate success – In the first 90 days of launching Korbyt, the company has acquired a new customer contract
Global footprint – Company is well positioned for US and international opportunities
The company has been on somewhat of a roller coaster ride, but based on our analysis and the above takeaways, we think company’s future is as a bright as a LED 4K TV.:)
Experienced Management Team
We believe that RMG Networks (Nasdaq: RMGN $4.34) recent business transformations; new product developments; and recent sales accomplishments and momentum have to do with their management team.
Its CEO, Bob Michelson, possesses the technical and operational experience that has helped the company navigate and position it for it’s next growth phase. Mr. Michelson has in-depth operational experience. He’s held operational and leadership at 6 companies, with 5 of the 6 having a liquidity event through a sale or going public.
Mr. Michelson was recently recognized as a 2017 EY Entrepreneur of the Year Technology Award recipient. It’s nice to see that business community recognized him for his business accomplishments.
Prior to joining RMG Networks as CEO, Mr. Michelson held a position with private equity firm Sterling Partners. With approx. $5 Billion under management, Mr. Michelson worked with various Sterling Partners’ portfolio companies.
An interesting note is that 2 of the 4 companies that Mr. Michelson held Lead Director roles in were SaaS software companies. HMMM….we think that it’s NOT A COINCIDENCE that Korbyt is a SaaS-based platform given Mr. Michelson’s experiences.
This further validates our belief that Mr. Michelson has the right operational and technology leadership experience that RMG Networks can lean-on to help grow its enterprise value, and lead into its next phase of growth.
Oh, and Mr. Michelson is not the only executive that was recently recognized for his business accomplishments. RMG Networks’ Chief Technology Officer, George Clopp, received an award in D CEO Magazine’s CIO/CTO category:
Click here to read more about RMG Network’s entire executive management team.
RMG Network’s Cloud-based Solution
Under Mr. Michelson’s leadership, RMG Networks was able to rapidly develop and launch KorbytTM, its next generation of data visualization platform.
Korbyt allows companies to quickly develop, deploy and manage digital content across multiple devices – from desktop to mobile to digital signage on a single platform.
Korbyt has the hosting flexibility to either be entirely via the cloud or as an on-premise solution. This provides maximum flexibility based on their business needs and guidelines. You can read more about Korbyt here.
We really like the fact that RMG Networks has launched a cloud-base offering, as the cloud-based solutions and strategies are key for corporate growth opportunities.
Why you ask?
Because cloud-based solutions have the following POSITIVE attributes:
On-going monthly subscription revenue
Tailored programs that aren’t one-size fits all for customers
Add-on/upsell opportunities for premium features
Easier software upgrades to install base as companies can typically avoid client hardware hassles
Increased performance optimization for clients because employees can access software anytime, anywhere
It requires companies to examine, fine tune, and optimize the user interface and the customer experience so that beginners can easily use the software
You only have to look to Microsoft and Adobe to see how their strategic migration of their solutions to the cloud and SaaS model has benefited both companies tremendous.
Here is a New York Times article highlighting the positive financial impact that’s been on Microsoft’s revenues (and share price) as a result.
Oh, and in Jan 2018, Microsoft did recently post a 12% increase in year-over-year revenue. And what did it attribute the success to? You guessed it, it’s cloud-based business units. Click here to read the full article.
Here’s a Techcrunch article that clearly outlines the strategy and success that Adobe had in pursing a business transformation in moving its product offerings to the cloud.
Success in the first 90 Days
The customer is a “large resort & casino company,” and key factors in why it chose Korbyt included “the customer was attracted to Korbyt’s easy to use web-based interface, simple content creation and high scalability resulting in the decision to migrate to the Korbyt platform.”
This is interesting since we shared our opinion where we think the hospitality and retailer sectors will continue to have real business needs for digital signage solutions.
We believe that this contract validates the huge market opportunity for RMG Networks.
We also wonder if RMG Networks relationship with ad-agency Levenson Group, as announced here, will help it in creating and procuring digital content for Korbyt customers.
The company’s main headquarters are in Dallas, Texas. It also has additional offices in the United States, United Kingdom and the United Arab Emirates.
As we earlier highlighted the potential issues with the US retail market that could have an impact with domestic digital signage business, we believe that international markets will continue to be attractive growth markets for RMG Networks (Nasdaq: RMGN $4.34).
Thus, we believe that RMG Network’s international presence is a plus. It’s actually already made a difference with the recently announced Korbyt sales contract.
We Like What We See
From the research we’ve done, we believe that RMG Networks (Nasdaq: RMGN $4.34) is a hidden gem in an industry that will continue to grow and expected to DOUBLE its market size in the upcoming years.
We like management’s pedigree and its pursuit of shifting its product strategy to a cloud-based offering that has worked well for the likes of Microsoft and Adobe.
We like that the company’s solution is addressing for the needs and pains of the enormous hospitality and retailer sectors. It’s not a niche solution, but one that can be used by EVERY hotel operator and retail property owner.
…AND we like that the company’s enterprise value and current stock price meets our target criteria.
Now you can’t play in the game if you’re not in the game.
Don’t wait too long to make your move.
RMG Networks (Nasdaq: RMGN $4.34 – website) has already announced a sales contract. We would expect to continue to hear positive news of the Company’s shift to cloud-based strategy. The Company’s stock price should move accordingly.
HURRY UP and finish your research. And be sure to share this information with your broker. Everything we have noted above is easy to verify through publicly available information. We are confident that you will find that RMGN is poised for a potential run from current price levels.
Remember, with every stock situation, it is crucial that you follow our stated mantra of protecting partial gains on your way up.
- The Money Street Health Care Trends Team
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