Investors have developed a bit of a love-hate relationship with the social gaming industry. On one hand, Sandler Research projects that the market will grow at a highly attractive 17.81% CAGR between 2013 and 2018. On the other hand, Zynga Inc. (NASDAQ: ZNGA) burned a lot of investors and is still trading down more than 65% since its highly watched IPO back in late-2011.
In this article, we’ll take a look at why CrowdGather Inc. (OTC: CRWG) might be an attractive bet on the industry’s rapid growth after its recent acquisition of Plaor.
Shifting into Gaming
CrowdGather announced the acquisition of Plaor and a shift into the social gaming industry on May 5, 2014. In addition to making the acquisition, the company announced the divesture of several wholly owned forum properties. The move freed up resources and working capital while maintaining nearly 80% of its monthly traffic and users coming from its hosted forum communities.
“Our vision is to create an exciting, high growth company that will leverage our traffic, users, and social media reach to provide Plaor’s titles with immediate access to hundreds of thousands of potential players for their games through the integration of a gaming center on all of our sites,” said Chairman and CEO Sanjay Sabnani in the press release announcing the acquisition.
Plaor’s social gaming revenue streams should help the company more effectively monetize the large amounts of traffic that it receives across its existing hosted forum communities. In its latest 8-K filing, the company indicated that its network averaged 93 million monthly page views, 10 million unique visitors, 20 million registered users, 75 million discussions, and 1.5 billion individual replies.
Started by industry professionals from Microsoft Corporation’s (NASDAQ: MSFT) XBOX team, Disney Corporation’s (NYSE: DIS) Interactive division, and Sony Corporation’s (NYSE: SNY) Online Entertainment division, Plaor is well positioned to capitalize on opportunities in the social gaming space with its portfolio of titles, including its flagship Mega Fame Casino & Slots™.
CrowdGather also retained its hosted forum communities business, which will continue to drive traffic and value over the long-term. Yuku.com, FreeForums.org, and Lefora.com represent its three largest hosted communities, which management plans on monetizing using its recently-launched advertising platform designed to connect advertisers to vertical-interest forum users.
Forums are ideally suited for advertisers given their uniquely targeted demographics compared to traditional publishers. According to Zack’s Research, forum users are 3.5x more likely to proactively recommend a purchase, 3.5x more likely to share links about new products, 4x more likely to post online reviews and ratings, and 10x more likely to also publish a blog.
In addition to its hosted communities, the company reported over 80 web properties and 600 web domain names in its most recent 10-K filing. These web properties, domains, forums, and mobile apps provide investors with diversified exposure to many different aspects of social media apart from just the social gaming focus that has hurt pure-play companies like Zynga Inc. in the past.
CrowdGather trades with a market capitalization of about $6.8 million, despite reporting just over $14 million in shareholders’ equity, as of its latest 10-Q filing. While approximately $4.4 million of that is goodwill, the majority of the remaining value is classified as intangible assets associated with its forum properties and domains, with its Plaor business not yet accounted for in the results.
Morningstar lists the company’s price-book ratio at an attractive 0.5x compared to an industry average 5.2x and an S&P 500 average 2.6x, while the company’s price-sales ratio of 3.9x is also below the industry’s 7.2x average. In effect, investors can acquire the diversified company for less than its book value, which could limit the downside risk associated with the stock over the long-run.
Finally, the company’s own management team have been consistent buyers of the stock over time. Form4Oracle data shows that insiders accumulated 620,000 shares over the past year through open market buying transactions at prices of between $0.06 and $0.07 per share. These transactions represent a significant vote of confidence among the firm’s management team and board of directors.