The ASX slipped into bear market territory last week, with no clear picture when the sell-off will end. In this environment, punting on ASX startups is reserved for very high risk investors.
Some startups, however, reward handsomely – such as Catapult Group International (CAT) that launched in 2014. The following chart shows the performance of the stock since it began trading on the ASX.
On its first trading day in Decemver 2014, investors gobbled up more than 1.1 million shares of CAT, the highest volume the stock has ever seen. On 11 January 2016 the share price was $1.96. In the midst of the global market carnage, the share price of CAT actually went up, closing on 11 February at $2.04. This is the kind of performance punters’ dream about.
1 Page Limited (1PG) demonstrates the alternative scenario when punting on startups. The company was the first US-based stock out of Silicon Valley to list on the ASX. Both these companies operate in the technology sector, with Catapult Group in technology equipment and 1 Page in technology software. Here’s the share price performance of 1PG since its debut via a reverse takeover on 15 October of 2014.
1 Page started hot, but like many IPO offerings, initial enthusiasm ebbed.
Catapult Group got its start making wearable sensors for monitoring Olympic quality sports performers. The equipment was used successfully in the 2004 Athens games and by 2006 the company began to look to expand into both professional and recreational sports. Catapult now has a gold-plated list of clients with heavy concentrations in the US and the UK, including about half the teams in the most popular sport in the US – NFL Football.
1 Page has a software platform with the potential to disrupt the recruitment and hiring process. The platform allows client companies to create and use a business problem typical in the job to be filled as an evaluation tool. Potential recruits create a “1 Page” solution to the problem. A separate platform searches and sorts potential recruits against the client company’s criteria.
Like many start-ups 1 Page has yet to transform revenue into profit, but the company is adding clients, with management stating they are on track to add 30 enterprise contracts in the next year. The shares were trading around $5 back in September.
Here is a table with some price performance information for CAT and 1PG as well as additional stocks in the technology sector.
Newzulu Ltd (NWZ) and Catapult are the only two companies with Australian headquarters. The remaining five are US companies listing on the ASX to raise capital. This appears to be a growing trend with Canadian companies seeking ASX listings through reverse mergers as well.
Newzulu demonstrates the risks of punting on newcomers. The share price opened and closed above the issue price but it has been downhill since. Here’s the price performance chart.
The company has a software platform that makes use of the Internet phenomenon known as crowdsourcing. Newzulu pays a “crowd” of photographers, freelance journalists, and literally anyone with a cell phone camera to submit pictures and stories of news events. The company then sells the content to a wide variety of media outlets. Social media platforms like Twitter and Instagram are essentially recruiting content contributors for Newzulu.
In theory, this sounds highly disruptive as Newzulu has the potential to get content to media outlets much faster. However, in practice, the company appears to be having no problem attracting the crowd; but sourcing the content to media outlets has not kept pace.
In a June 2015 Quarterly Activity release, management said:
The FY 2015 Full Year Financials and the latest Quarterly report show substantial year over year increases in revenue, but investor interest is lacklustre. The company released a flurry of news releases touting new agreements signed. Capital raises to institutional investors have diluted the stock, another source of irritation to the average investor. However, the company is creating what in effect would be a global news network and has a Technology Platform to offer its clients as well. With this platform, news outlets or businesses interested in stories relating to their brand could use the platform to search the social media world for relevant content.
Brainchip Holdings (BRN) is based in Orange County California, the self-styled “Silicon Valley of Southern California.” The company is in the neural computing field where developers are creating computing solutions that operate like the human brain. Brainchip has something called Spiking Neuron Adaptive Processor (SNAP) technology, which management claims is the only hardware only solution in the field. Other companies are after software solutions.
Brainchip’s Spiling Neuron Adaptive Processor (SNAP) refers to the hardware that could be used in smartphones, games, robotics, drones, and driverless cars. Retail investors were lured by the siren song, turning in opening day volume of 18.6 million shares traded, followed by 21.4 million traded on the second day.
On 1 February Brainchip announced it had reached a development and marketing agreement with a neural computing software solution provider, Applied Brain Research. BRN presents an intriguing story, but there is not much written about the company to evaluate its prospects.
Livetiles Limited (LVT) is based in New York. The company has a proprietary software platform that allows its clients to build customized networks, both internal and external. This is a cloud-based platform operated by LVT in conjunction with a partner with which you might be familiar – Microsoft.
The company has two products for business use – LiveTiles Design and LiveTiles Build – and a LiveTiles Mosaic – for use by K-12 educational outlets utilizing Office 365. LiveTiles Mosaic is offered free of charge. Design and Build allow companies to create custom User Interfaces (UI) in conjunction with Office 365 subscriptions and SharePoint.
The company appears to have potential but suffers from a problem shared by many micro-cap start-ups – an appealing story about market potential with no information about revenue growth plans.
MSM Corporation International (MSM) describes its Megastar Millionaires software platform as a talent discovery contest. Reality Television has captured the attention of the world with the explosion of Talent Discovery Television shows tantalizing many with the dream of becoming famous. Think of the power of the Internet harnessed to the dreams of perhaps millions of people everywhere.
The idea is to use the internet to connect would-be star performers with fans in an interactive experience where the fans vote in support of performers ranging from singers to extreme sports performers. The top performers go on to be judged by a panel of experts in the field. The initial contest runs 16 weeks. The company expects to launch Megastar Millionaires in the US in the fourth quarter of 2016, followed by launches in Australia and New Zealand. The principal revenue driver will be advertising on the platform and subscriptions.
The final stock in the table is another entry from Silicon Valley – Shareroot Limited (SRT). Shareroot has a software platform that allows its clients to tap in to social media platforms in search of content relating to their company, business sector, or a custom search.
This content takes the form of comments and visuals in forums and news sites, blog posts, and product reviews. The descriptive acronym you may encounter is UGC – user generated content. UGC is a powerful force that accounts for the explosion of interest in social media. People everywhere trust user generated product reviews more than product descriptions generated by manufacturers.
The company’s core function is Search and Request. Anyone with brand identification can use this function to search Twitter and Instagram for content, and it’s perfectly legal. The functionality extends to requesting full legal rights of visual or written content from the posting user.
Shareroot currently has 30 paying customers; notable among them are Costco and the ticket exchange site owned by eBay, StubHub. The company has 50 clients enrolled in their “Land and Expand” program. Essentially this is a trial period where the client uses the platform at a heavily discounted rate. Management expects all 50 to convert to fully paying users. Shareroot couldn’t have picked a worse time to go public.
This column does not imply any stock recommendations or offer financial advice. Readers should do further research of their own or talk to their adviser before acting on themes in this article.