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Crowd Mobile Ltd (CM8.ASX)

Overview: Crowd Mobile Limited (“Crowd Mobile”, “the Company”) is

an Australian technology Company focused on mobile software and

services. The Company owns and operates a portfolio of trade

marked software applications and messaging services for mobile

devices, orientated toward the delivery of low cost consumer advice.

Founded in 2005, the Company has operations in 13 countries and

has listed on the ASX via a reverse merger with Q Limited.

Catalysts: Crowd Mobile is poised to monetise recent distribution

investments for its consumer advisory services. Historically restricted

to delivery via Direct Carrier Billing (DCB) Premium SMS (PSMS),

FY15 represents its first period with expanded capability utilising app

and web based mechanisms. Service availability is also increasing

from 13 to over 20 countries. Supported by a controlled cost base,

near term earnings growth stand as the primary driver.

Hurdles: Whilst the Company generates positive cash flow, its

reliance on external capital remains to be eliminated. Existing revenue

streams are predominantly derived from services distributed via

PSMS and DCB, and there is no guarantee recent investments in new

delivery techniques will be commercially successful. Demand for

Crowd Mobile’s services is driven by consumer trends which can be

transient and subject to limited entry barriers for competitors.

Investment View: Crowd Mobile offers profitable exposure to the

market for mobile software applications and services. We are

attracted to its established income profile and scalability. Contingent

on management’s cost control and marketing returns, our valuation

represents a premium of 69 per cent to recent trade. Recognising the

Company’s capital growth potential, we initiate coverage with a

‘speculative buy’ recommendation.

Crowd Mobile Valuation Summary

Method Assumption Valuation Per Share

Comparables 3x Sales $29.5m $0.39

CFME 4x FY18f EBITDA $27m $0.36

Average $28.3m $0.38

Concept Commercial Trials Sales

Corporate Summary

Ticker

CM8.ASX

Shares on Issue

75m

Other Securities -

Market Cap $16.8m

Issued Capital $2m

Financial Overview FY14 pf

Revenue

$9.8m

EBITDA

$2.0m

NPBT

$1.5m

PE -

Div Yield -

Board of Directors

Chairman

Theo Hnarakis

CEO & Exec Director Domenic Carosa

Non Exec Director Hans de Back

Non Exec Director Frank Giugni

Share Holders

D.S.A.H. Holdings Pty Ltd 24.6%

Management 24.8%

Top 20 74.0%

Share Price $

Source: Bloomberg

Prophecies with Profits Speculative Buy

3-Feb-2015

Valuation $0.38

Last Price: $0.225

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3 February 2015

Company Overview

Crowd Mobile Limited (“Crowd Mobile”, “the Company”) is an

Australian technology Company focused on mobile software and

services. The Company owns and operates a portfolio of trade

marked software applications (“apps”) and messaging services for

mobile devices, orientated toward the delivery of consumer advice.

Founded in 2005, the Company has operations in Australia, New

Zealand, United Kingdom, Ireland, Germany, Austria, Italy, France,

Belgium, The Netherlands, Hungary, Portugal and Switzerland.

Crowd Mobile listed on the Australian Securities Exchange in January

2015, via a reverse merger with Q Limited. The listing coincided with

a consolidation of Q Limited shares on a 1:40 basis and a $0.5million

equity raising at $0.20/share (post consolidation). Issued capital of the

combined entity stands at $2million, or $0.028/share. Existing and

new investors associated with Crowd Mobile accounted for 94.7 per

cent of shares in the combined entity.

Asset Overview – Crowd Mobile Platform

Crowd Mobile’s primary asset is a portfolio of mobile software

applications and messaging services orientated toward the delivery of

consumer advice. The portfolio has been developed since 2005 and

is supported by an integrated cloud based management platform

which allows the Company to service user demands utilising 'crowd

sourcing’ techniques (“Crowd Mobile Platform”).

Services provided by the Crowd Mobile Platform and its constituent

applications are ‘question and answer’ orientated. Typically,

consumers seeking advice on a particular matter send questions

through one of Crowd Mobile’s service channels, for which the

Company procures a rapid, relevant, tailored response.

The capacity to efficiently manage inbound questions and procure

relevant responses is a critical feature of the Crowd Mobile Platform.

During 2014, Crowd Mobile charged customers for over 3.4 million

questions and internal testing of its technology platform has identified

few capacity constraints to accommodate future growth.

Background

Since its launch in 2008, the number of mobile software applications

available in the Apple App Store has grown to 1.3 million.

Consumption via the Apple App Store accounts for over half of the

global apps market, which was estimated by Frost and Sullivan to be

worth A$19.3 billion in 20131

1. Frost and Sullivan (2014). Independent Industry Report on the Mobile Apps Market.

Serviced Market

Head Office

Figure 1: Crowd Mobile is an Australian Company currently servicing domestic and European markets. Source: wise-owl

Reverse listing in Jan ‘15

Figure 2: Crowd Mobile provides consumer advisory services through its cloud based mobile platform. Source: wise-owl

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3 February 2015

App developers typically generate income by charging users a one off

fee, or via the provision of billable services within an otherwise freely

available app (“freemium”). According to data compiled by Statista,

under 10 per cent of app downloads are paid, indicating that freemium

models account for over 90 per cent of the market by volume2. This

market is dominated by game developers, with IBIS World estimating

that over half of all apps are gaming apps3.

Crowd Mobile’s services fall under the ‘freemium’ category.

Supporting applications are free to download, with utilization of the

service incurring charges on a ‘per question’ basis. In contrast to

gaming apps currently dominating the market, Crowd Mobile’s

services are oriented toward consumer advice. Services available

cover consumer advice topics, including fashion, morals, and gossip.

Features and Benefits

Relative to gaming services which presently dominate the mobile

apps market, Crowd Mobile’s business model appears less capital

intensive and lower risk.

The ‘question and answer’ nature of its portfolio requires relatively low

development and maintenance costs. The Crowd Mobile Platform

manages order flow, whilst responses are generated by specialized

contractors, remunerated on a ‘per answer’ basis. Crowd Mobile

engages over 500 contractors located around the world answering in

half a dozen languages. This operating structure ensures continuous

“24/7” service availability and reduces fixed costs for the Company.

Moderators of the Crowd Mobile Platform can utilize a 51million

question and response archive to accelerate service delivery, whilst

features such as auto correction and keyword matching maintain

quality control between correspondences.

Analytical features of Crowd Mobile Platform allow the Company to

identify changes in consumer trends and develop targeted services to

complement its existing portfolio.

Commercialisation Strategy

Crowd Mobile’s portfolio and distribution capability has historically

been oriented toward PSMS services, which can be utilized by all

mobile devices. However in light of increasing smart phone adoption,

the Company’s recent strategic focus has been the Crowd Mobile

Platform. Cloud based, versatile, and scalable – the Crowd Mobile

Platform is capable of receiving of questions from a variety mediums

such as SMS, Web, and Apps.

2. Statista (2013). Mobile App Usage Dossier 2013.

3. IBIS World (2014). Smartphone App Developers in the US.

Figure 3: Crowd Mobile’s existing portfolio of trade marked services cover a wide range of consumer advice topics, including fashion, morals, and gossip. Source: Crowd Mobile

Freemium model with users incurring a fixed charge per service request

Services now available via multiple delivery mechanisms

Figure 4: FY15 will mark the first full year in which Crowd Mobile’s services are available through multiple delivery platforms. The services have been historically restricted to delivery via PSMS. Source: wise-owl

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3 February 2015

Advisory services currently provided via the platform are oriented

toward fashion, morals, and gossip under the following trade marks;

▪ Passion for Fashion

▪ What Would Jesus Do

▪ Bongo

▪ 63336

▪ SMS Guru

▪ Buddy

Crowd Mobile’s initial focus is to expand these services with

established demand profiles into new markets. Over the past 12

months, the Company has successfully expanded into non English

speaking markets and now operates in 13 countries. Plans are in

place to be operating in over 20 countries within the next two years.

Concurrently, the Company is developing a pipeline of new products

capable of delivering professional advisory services and relationship

advice. Existing infrastructure associated with the Crowd Mobile

Platform allows new services to be developed for low capital outlay.

Economics

The cost of utilizing Crowd Mobile’s services typically ranges from $2

to $10 per question for the consumer. Crowd Mobile derives between

35% - 75% of these proceeds with the balance retained by distributors

(telco and app stores). After deducting distributor splits, the Company

generated revenue of $2.80 per question on average during FY14.

Whilst most revenue was generated via PSMS services, the Crowd

Mobile Platform has now removed this constraint.

Crowd Mobile Economic Drivers

Customer Charges $2 - $10 per question

Distributor Split 10% - 50% App Stores & Telco’s

Net Revenue $2.80 per question FY14

Table 1: After deducting distributor splits, Crowd Mobile generated net revenue of

$2.80 per question during FY14. Source: wise-owl, Crowd Mobile

With researchers paid a fixed split out of net revenue on a ‘per

answer’ basis, the primary determinant of commercial success

remains returns associated with marketing expenditure. The average

user life cycle of Crowd Mobile’s services has historically been up to

seven service requests, hence there is a need to constantly procure

new users.

Crowd Mobile conducts targeting marketing via social media and a

joint venture with MTV. Its marketing strategy requires expenditure to

be effectively ‘repaid’ via the first service requests generated by

procured customers. Based on the Company’s existing fixed cost

profile, and assuming that initial service requests ‘repay’ variable

marketing costs, we estimate that customers become profitable after

the 2nd

question.

Expansion to 20 markets and low capex pipeline of new product

roll outs to drive growth

Figure 5: In addition to geographic expansion, Crowd Mobile has developed a pipeline of new services to drive growth. Source: Crowd Mobile

Return on marketing expenditure is the critical economic driver

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3 February 2015

Financial Performance

Crowd Mobile generates income via the provision of mobile software

services and applications. A review of its operating history is limited to

the last two financial years. Prior to its reverse merger with Q Limited,

Crowd Mobile generated revenue of $9.8million, normalised EBITDA

of $2.19million, and before tax profit of $1.5million during FY14.

Against the previous corresponding period (pcp), revenue was largely

flat, predominantly driven by PSMS services. Earnings contracted by

approximately one third, related to increased marketing and software

development expenditures associated with the Crowd Mobile

Platform. The platform expands Crowd Mobile’s distribution capability

beyond Premium SMS. Marketing and development costs are

completely expensed in their year of occurrence.

Whilst the Company paid fully franked dividends totaling $3million

during the past two years, we expect excess cash flow to now be

reinvested for growth. Alongside retained earnings, Crowd Mobile has

funded its growth strategy via a combination of hybrid securities and

equity. To accompany its reverse merger with Q Ltd, Crowd Mobile

issued new shares worth $2million at $0.20/share. Stock to the value

of $0.3million was issued as consideration for existing convertible

notes, $1million was issued in lieu of corporate advisory and director

fees, whilst proceeds of $0.67million were raised from new

shareholders with proceeds budgeted for working capital purposes.

We estimate issued capital following the reverse merger and capital

raise to be $2million, or $0.028/share.

Crowd Mobile Financial Summary FY14

Revenue $9.8m ↓1.7% vs FY13

Net Profit Before Tax $1.5m ↓ 1/3rd vs FY13

Normalised EBITDA $2.2m

Cumulative Dividends $3m FY13 and FY14

Issued Capital $2m $0.028/share

Table 2: Crowd Mobile paid dividends totalling $3million during FY13 and

FY14. Source: Crowd Mobile

FY14 before tax profit $1.5m

Development costs completely expensed

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3 February 2015

Valuation

Crowd Mobile’s investment appeal rests in the current and future

revenue streams generated by its portfolio of mobile applications and

messaging services. We have considered the Company’s potential

worth using a Comparables approach and Capitalisation of Future

Maintainable Earnings (“CFME”) methodologies. Our appraisal is

based on its current capital structure, hence assuming that no further

external funding is required.

Our Comparables approach arrives at a valuation of $29.5million, or

$0.39/share. Our CFME method arrives at a valuation of $27million,

or $0.36/share Applying equal weightings both methods delivers an

aggregate valuation of $28.3million or $0.38/share.

Crowd Mobile Valuation Summary

Method Assumption Valuation Per Share

Comparables 3x Sales $29.5m $0.39

CFME 4x FY18f EBITDA $27m $0.36

Average $28.3 $0.38

Table 3: Our appraisals suggest Crowd Mobile is worth $0.38/share. Source: wise-owl

Comparables

A universe of comparable companies has been assembled which are

engaged in the provision of consumer orientated mobile software

services. Price to sales multiples range from 1.5 to 3.5 times FY14

revenue, with Moko Social Media (MKB.ASX) and Migme Ltd

(MIG.ASX) notable outliers.

We note that companies engaged in mobile services incorporating

gambling attract multiples at the lower end of the range, possibly due

to the presence of greater regulatory burdens. As the advisory nature

of Crowd Mobile’s services are subject to minimal regulation, we have

applied a mid range multiple of 3x, implying a valuation of

$29.5million.

Figure 6: Comparable mobile software service companies. Sources: wise-owl,

Bloomberg

0

2

4

6

8

10

Pri

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o S

ale

s

Consumer Mobile Software Comparables

Valuation $0.38/share

Sales multiples currently 1.5x to 3.5x

Page 7 of 13

3 February 2015

Crowd Mobile Comparables Summary

Metric Assumption Comment

FY14 Sales $9.8million Historical audited result

Multiple 3x Upper range due to favourable regulatory profile

Valuation $29.5million $0.39/share

Table 4: Our Comparables appraisal indicates Crowd Mobile to be worth $0.39/share.

Sources: wise-owl, Bloomberg

Capitalisation of Future Maintainable Earnings (CFME)

Post FY15, we have projected the Company’s financial performance

for the next three financial years to a level that represents a

sustainable earnings capacity. To our estimation of future

maintainable earnings, an industry based multiple has been applied to

arrive at a valuation of the Company.

Crowd Mobile CFME Summary

Metric Assumption Comment

FY18f EBITDA $6.7million forecast

Multiple 4x Current industry median

Valuation $27million $0.36/share

Table 5: Our CFME appraisal indicates Crowd Mobile to be worth $0.36/share.

Source: wise-owl

Our financial projections are based on the organic expansion

potential of Crowd Mobile’s existing operations. We project EBITDA

of $6.7million by FY18. Current industry trading multiples range from

three to eighteen times EBITDA. Considering the relatively fewer

data points for this approach, we have applied the median multiple of

4x to arrive at a valuation of $26million.

Figure 7: Mobile software service providers currently attract median EBITDA multiples

of 4x. Sources: wise-owl, Bloomberg

0

4

8

12

16

20

MOBILE EMBRACE KING DIGITAL ENT. NETENTERTAINMENT

JUMBOINTERACTIVE

EV /

EB

ITD

A

Industry Earnings Multiples

Median EBITDA multiple 4x

Page 8 of 13

3 February 2015

Investment View

Crowd Mobile offers profitable exposure to the market for mobile

software applications and services. We are attracted to its established

income profile, scalability of the Crowd Mobile Platform, and near

term growth plans.

With limited entry barriers to competition and demand for its advisory

services subject to consumer trends, returns on marketing

expenditure is expected to be a critical determinant of the Company’s

performance.

Should management retain modest development costs and

successfully execute their marketing strategy, earnings stand as

Crowd Mobile’s primary share price catalyst. Our valuation represents

a premium of 69 per cent to recent trade. Recognising the Company’s

capital growth potential and unique existing cash flow profile, we

initiate coverage with a ‘speculative buy’ recommendation.

Valuation represents 69 per cent premium

Page 9 of 13

3 February 2015

Risks

Technical Risks

Crowd Mobile relies upon relationships with aggregators and carriers

in all markets it operates. These companies bill Crowd Mobile’s

customers through their billing mechanism and pass on a share of the

revenue to Crowd Mobile. A disruption in the relationship or

technology may impair Crowd Mobile’s capacity to generate cash

flow.

The Company’s income has historically been generated primarily

through services delivered via Premium SMS. Whilst the Crowd

Mobile Platform provides new capability to deliver service via multiple

distribution mechanisms, consumer adoption is not guaranteed.

Regulatory Risks

Crowd Mobile Services operate under regulatory codes and

requirements that vary between jurisdictions and are subject to

change. Imposition of greater regulations in one or more jurisdictions

could add complexity and cost to the business, or even require key

service features attractive to the majority of users to be disabled.

Commercial Risks

Intellectual Property protections surrounding Crowd Mobile’s assets

are presently limited to trade marks and ‘know how’. There is no

guarantee these protections will be sufficient to mitigate against

competition.

Crowd Mobile’s long term growth strategy incorporates products

orientated toward the provision of professional advice. Demand for

the Company’s services in this field is untested.

Market Risks

Barriers preventing new competitors from entering the mobile services

industry are generally low. Demand for software services of the nature

currently supplied by Crowd Mobile may be subject to popular trends

and change over time. There is no guarantee the Company can

successfully adapt its product and service offering to in anticipation of

popular trends.

Funding Risks

Whilst Crowd Mobile generated positive cash flow during FY14, its

earnings history is limited. There is no guarantee the Company will be

able to execute its growth strategy without seeking external capital.

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3 February 2015

The Bulls & The Bears

The Bulls Say

Crowd Mobile already generates income, and after paying dividends totalling $3million during the past two financial years, is now investing for growth

With investment into its cloud based distribution platform completed, FY15 marks the first year in which Crowd Mobile can deliver services through multiple mechanisms

Expansion into new markets and progressive rollout of additional low cost services are expected to drive earnings growth

Our valuation represents a significant premium to recent trade

The Bears Say

Existing income streams contracted during FY14 and there is no guarantee the trend will reverse

There is no guarantee consumers will embrace new app and web based delivery channels made possible by the Crowd Mobile Platform

Transient nature of consumer trends and average historic user life cycles could challenge the Company’s growth ambitions

Valuation is contingent on the Company realising budgeted returns on marketing expenditures, which is not guaranteed

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3 February 2015

Management

Theo Hnarakis – Chairman

Theo Hnarakis graduated from The University of South Australia with

a Bachelor of Accounting and has held senior roles with News

Corporation, Boral Group, the PMP Communications group and was

the Managing Director and CEO of Melbourne IT until 2013. He has

also held director roles with Neulevel, a JV with US based listed

company, Neustar and with Advantate, a JV with Fairfax Media. Mr

Hnarakis is also currently a Director of Newzulu Limited (ASX:NWZ).

Domenic Carosa– CEO and Executive Director

Domenic has over 20 years’ experience developing and managing

technology businesses. He co-founded and served as Group CEO of

ASX-listed Destra Corporation Ltd (ASX: DES), which was the largest

independent media and entertainment company in Australia with

revenues of over A$100 million. Mr Carosa was a director of Destra

Limited until April 2009.

During the late 90’s Domenic lead development of Australia’s leading

digital music service provider for independent and unsigned artists –

MP3.com.au – and founded Australia’s second largest virtual web

hosting/comms company which he sold for A$25 million in 2006-07.

Domenic holds a Masters of Entrepreneurship & Innovation (MEI)

from Swinburne University. Domenic is chairman of the Future Capital

Development Fund, chairman of Dominet Digital Corporation Pty Ltd,

an Internet investment group and a non-executive director in Shoply

Limited (ASX:SHP) and Collaborate Corporation Limited (ASX:CL8).

Hans de Back– Non Executive Director

Mr. de Back has significant experience across multiple high-

technology industries including mobile, gaming, and social media. He

holds a master degree in corporate law from Amsterdam University.

Mr. de Back is currently the Managing Partner at Incubasia Ventures,

which is an unlisted investor and incubator working with innovative

and scalable technology companies. He currently holds directorships

for Moko Social Media (ASX: MKB) and iCollege (ASX: ICT).

Frank Giugni – Non Executive Director

Frank is an experienced finance professional with extensive profit-

centre experience gained in several key accounting and management

roles with major ASX and FTSE-listed companies. He specialises in

restructuring and performance improvement, as well as mid-market

merger & acquisition activities.

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3 February 2015

Appendix – Financial Projections

Financial Year 2015 2016 2017 2018

Revenue $ 11.7 $ 18.8 $ 28.9 $ 34.6

COGS $ (4.29) $ (7.68) $ (10.96) $ (13.15)

Marketing $ (2.98) $ (4.70) $ (7.22) $ (8.66)

Fixed Overhead $ (2.05) $ (3.29) $ (5.05) $ (6.06)

EBITDA $ 2.40 $ 3.14 $ 5.64 $ 6.77

CFME Valuation Summary

Maintainable EBITDA FY18f $ 6.77

Multiple EBITDA 4x

Valuation

$ 27.08

per share $ 0.36

Notes

1. All figures in AUD millions unless stated otherwise

2. Per share valuation based on current capital structure

3. Excludes the impact of share based payments made during the year including non cash consolidation adjustments, if any, in relation to the takeover of Q Limited by the Crowd Mobile vendors

Page 13 of 13

3 February 2015

Glossary

Buy Increasing value of established business operations is likely to yield share price appreciation

Spec Buy Increasing value of a new or developing business operation is likely to yield share price appreciation.

Hold There exists an even balance of risks

Sell There is elevated risk of share price depreciation.

Stop Our recommended, pre determined sell price, to be executed if the share price fails to appreciate

Concept An early stage of technological development characterised by design, controlled tests and prototyping

Commercial Trials

An intermediate stage of technological development characterised by testing with end users and prospective customers

Sales An advanced stage of technological development where regulatory approvals have been secured and a commercial rollout has commenced

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Archives

Crowd Mobile Ltd (CM8.ASX)

Jan-15 Initiating Coverage

Analysts

Simon Herrmann simonh@wise-owl.com

Imran Valibhoy imranv@wise-owl.com

Tim Morris timm@wise-owl.com

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