Zacks_Analysts' Blog : Augme Diversifying Its Revenue Base - Analyst Blog

Ken Nagy, CFA

Augme Technologies, Inc. (AUGT) is a leading one-stop mobile marketing and advertising company that empowers brands, agencies and media properties to engage customers, drive loyalty and increase sales. Augme enables its customers to connect with consumers across every mobile channel, including SMS, 2D/QR codes, mobile websites, advertising networks, social media and branded apps. Augme’s proven technology, strategic and marketing services and experienced account management teams have provided measurable successes across an industry-leading 130,000 campaigns for such clients as Macy’s, MillerCoors, Nestle, KFC, and Clear Channel.



The Company’s robust platform is its mobile marketing technology which is one of the industry’s only patented end to end mobile marketing platforms (AD LIFE tm). The AD LIFE tm platform provides marketers, brands and advertising agencies the ability to create, deliver, manage and track interactive marketing campaigns targeting mobile consumers.  Augme’s platforms facilitate consumer brand interaction and the ability to track and analyze campaign results. Beyond its blue chip portfolio of clients, Augme has a valuable Intellectual Property (IP) portfolio. The IP portfolio will provide licensing opportunities as well.

Augme’s business has been evolving into two primary business models utilizing the same Software-as-a-Service (SaaS) platform.  The recent acquisition of Hipcricket has quickened this change.

The first model involves a shorter-term duration mobile marketing campaign that is more tactical in nature. For example, a back to school campaign conducted for a retailer or the development of a branded mobile application. The type of campaign might run over 60 days and then conclude. The client may come back in the future for more campaigns or might not. This is a smaller portion of Augme’s overall revenues.

The second model involves long-term contracts generating recurring revenue that is fairly predictable and currently accounts for approximately 60% of the Company’s revenue. This model utilizes the same SaaS platform and is primarily offered in one of two ways. One offering consists of a fully managed service in which Augme uses its SaaS platform to execute, measure and optimize campaigns for its customers.

The other is a self-service licensing fee-based model that drives revenues primarily through license fees where the clients themselves employ the Company’s software and revenues are generated primarily through license fees. Access to the platform drives the economics rather than a strict per campaign fee. The accelerated growth of the campaigns powered by Augme’s platform indicates market growth, customer uptake, and the proven scalable technology platform built by Augme. Therefore, the total campaign count (over 30,000 in the first six months of 2011) doesn’t directly indicate revenues but offers more directional guidance to the stability, adoption, traction and success of the platform. As a result, Augme has built a reputation as a premium provider with a scalable and reliable platform.   

The Company’s self-service (SaaS based) solution has begun its growth trajectory and today accounts for <10% of revenue. This type of business naturally has higher margins and is very scalable.  Licensing opportunities offer Augme attractive partnership opportunities with third parties.  In addition, Augme receives recurring revenue opportunities from software licenses and royalties for associated IP.  While recurring revenue would be recognized over the license term, this would also offer the Company the additional opportunity to receive recurring monthly service fees for marketing campaigns as well as professional services and transactional fees. Augme recently became a validated partner for Oracle and this should open up the firm to more clients and larger campaigns.

Customers running mobile campaigns are shifting from the $50,000 variety to more typically, over $1 million in annual revenues.  However, these contracts have a longer lead time which makes providing guidance a bit tricky. As the business model continues to shift, deferred revenue should become less important.  Breakeven for the Company remains $28-30 million on an annual basis or $7-7.5 million per quarter. We feel Augme could reach that per quarter figure by the fourth quarter of 2012. (FY Ends February 29, 2012) Augme counts 50+ of the Fortune 500 companies as clients and supports over 300 brands. The Company enjoys higher than industry average margins.    

In addition, Augme also offers mobile advertising solutions to its clients involving mobile advertising services of strategy, media buying and planning as well as executing and measuring mobile advertising placements in mobile display, rich media, video and SMS media. This area has also been very successful for the Company and is growing rapidly. It is an important piece of the one stop, end-to-end mobile marketing and advertising provider position sought by more and more of the Company’s customers.



Typical Customer Case Study

Let’s look at a typical case such as Ford Motor. Ford is projected to spend $1.3 billion on advertising in 2011. Like all advertising the primary purpose is to create leads that eventually turn into sales. Prior to aligning with Augme (Hipcricket) the firm had virtually zero advertising dollars attributed to mobile campaigns.  Through a combination including a mobile call to action, giving consumers a real-time opportunity to interact with Ford, and measuring response levels Augme created results with a 15.4% conversion rate in which leads were delivered to local dealers and followed up on that day.



According to market research firm ABI Research, compared to campaigns in more traditional media, mobile marketing can be relatively inexpensive.  Moreover, ads can be highly targeted and naturally paired with rich mobile content that growing numbers of consumers are accessing through smart mobile devices. Combine this type of cost saving potential with the fact that most advertising campaigns are heavily scrutinized in low growth environments and you have a powerful business model.

 

For further information and a copy of the full AUGT report, please email scr@zacks.com with the ticker AUGT as the title.