Like many parents, I struggle to limit screen time for my kids. It’s hard to keep it below an hour a day when there is a TV, iPad, iPhone, laptop or another gadget in easy reach.
You tell them to turn off their laptop, only to realise it is being used for homework. You tell them to put off the iPad, then realise they are using it to create movies, music or other goods things.
Thankfully, my kids like sport and, for the most part, are not addicted to computer games or binge-watching TV on devices. But their childhood is different to mine.
Gone are the days when most kids came home from school and went straight to the backyard to kick a football, play cricket or climb trees. They are just as likely to go for an iPad, laptop or watch TV after school and, sadly, stay on a screen for longer than is healthy.
Children aged up to eight spend an average two hours and 19 minutes on screens each day, almost three quarters of it on TV viewing, a 2017 report by Common Sense Media found. That’s up from 1 hour and 55 minutes for the same age group in 2011.
The average teens spend 5 hours a day online and checks their phone 50 times.
Spending too much time on screens is bad for their social skills and health (there was more bad news on Australia’s obesity rates this week). Also, greater screen time increases the exposure of kids to cybersecurity risks – an opportunity for stocks such as Family Zone Cyber Safety.
Parents have good reason to worry about cybersecurity and spend on technology to combat the risk. Cybersecurity risks for kids include anonymous sharing of images and messages, cyberbullying and inappropriate contact with kids through online channels.
It’s terrifying thinking that your kids, when playing online games that have remote players, could be talking to people who prey on children and pretend to be their age. Or that some teenagers watch pornography, ‘sext’ to their friends or gamble online.
Cybersecurity risks are rising. Corporate spending on cybersecurity is expected to increase sixfold by 2021 as cybercrime becomes a gigantic global problem. As more people and devices connect online, and more business is done via the internet, cybercrime will grow.
Which brings me to Family Zone Cyber Safety. The microcap listed on ASX in August 2016 through an $9-million Initial Public Offering (IPO) with little fanfare. At the time, it looked like yet another speculative tech stock looking to justify its market capitalisation.
Family Zone has rallied from a 20-cent issue price to 46 cents, having peaked at $1.06 in October 2017. Even after price falls this year, it is among the best-performing tech IPOs in the past few years and looks to have good prospects.
More than 600 schools and 350,000 families across Australia, New Zealand the United States use Family Zone’s cybersecurity technology. Its platform restricts adult content on devices used by kids, manages screen time and restricts social media. The technology works across devices and gives parents better peace of mind on their kids’ cyber safety.
Schools utilise the technology for classroom internet usage, network administration as part of their broader digital-citizenship strategy and duty to students, teachers and parents.
Like all good software-as-a-service companies, Family Zone charges an ongoing monthly fee, providing visible, recurring, high-margin revenue. The business is highly scalable and the marginal cost of adding extra users to the service is low after the technology is built.
Family Zone announced in May an agreement with Vodafone, India’s largest mobile-network provider, and Micromax, India’s second-largest maker of mobile and tablet devices. The deal puts Family Zone in the giant Indian market, providing powerful distribution.
Vodafone has 430 million subscribers in India and Micromax makes and sells 30 million Android mobile devices each year. Family Zone’s mobile App is being embedded in Micromax devices and promoted through the company’s 125,000 retail outlets in India.
The deal, expected to lead to a commercial launch in the fourth quarter, gave a small boost to Family Zone stock, even though it puts the company in a market that is at least 50 times larger than Australia. About 200 million children in India have a mobile device and there is no dominant provider of cybersafety solutions for young people in that country.
The deal followed a collaboration, also announced in May, with Netsweeper Inc, a leading global provider of enterprise filtering services that works with governments, telcos and schools. Like the India deal, this one rapidly expands the global reach of Family Zone technology.
Family Zone’s quarterly customer billings ($1.72 million in the March quarter of FY18) quadrupled from those of the previous quarter. Granted, it’s off a low base and billings are small relative to Family Zone’s $48-million capitalisation. But the growth trajectory is key.
As with other emerging tech companies, Family Zone’s challenge is rapidly expanding its ecosystem so many more organisations use the technology. Should that happen, the company’s revenue will rise quickly, giving it surplus cash flow to reinvest in product and market development and scale the opportunity.
Early signs are promising. I suspect investors got too excited about Family Zone when its share raced past a $1 and have lost some interest this year, even though the company has announced impressive distribution agreements with global partners.
Often, the best indicator of emerging tech companies is the quality of their partners. Giant telcos and device makers conduct plenty of due diligence before doing deals with small tech companies. Family Zone clearly has something bigger players see value in.
Family Zone still has a lot of work ahead to justify its valuation and is burning cash. The company’s cash balance was $5 million at the end of the March quarter. A $5-million capital raising in December at 60 cents a share added much-needed cash.
The market will need to see stronger growth in quarterly cash flow and a sharp increase in contracted revenue to ease fears about further equity capital raisings at lower share prices that dilute existing shareholders.
There are many risks. But Family Zone has a product for the times, strong partners who want to take the technology global and looks on the cusp of stronger cash-flow growth.
As with all loss-making tech companies, Family Zone suits experienced investors who are comfortable with speculation. The stock is not for the risk averse or long-term portfolio investors avoid punting on early-stage companies.
Chart 1: Family Zone Cyber SafetySource: The Bull
• Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article you should consider the appropriateness and accuracy of the information, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at June 21, 2018.