The share price of IZON NETWORK INC (OTCMKTS:IZNN) spiked up in February after the market received an attorney letter with respect to the current information provided by IZNN. From $.03, the share price increased to $.15 in just one day before retracing back to $.04. During this period, its traded volumes have also risen to nearly 10 million as shown in the following chart:
With stock gains exceeding more than 200%, we will be expecting a more sustained upward trend in the near future if the company keeps delivering at the same revenue growth pace as seen in 2017. On the downside, a close below the $.03 mark would be worrying, but, in our opinion, taking into account the recent announcements, it is not likely.
IZON NETWORK INC. was founded in 2011. The company is meant to be a leader in on-course technology & GPS services to golf course operators and golfers. IZON has created a proprietary and private media platform that connects highly valued luxury consumers with advertisers in a very targeted manner. It has 35 full-time employees and leases 5014 square feet office in Phoenix, Arizona.
For the non-golfers, who may not know the software provided, the following videos are the best in kind to show what the company offers. The first is about the IZON Dashboard, while the second shows the App:
The software is interesting, but how is the money made?
As mentioned, IZON receives payments from advertisers. IZON is installed in golf cars that operate on this software and are owned by golf courses across the United States. While the platform offers several engaging services to golfers as seen in the videos, the platform is used by advertisers to show ads.
What’s our take? As indicated in the last annual report, the most interesting, in our opinion, in this business model is the target client. Data from golfers is expensive, and advertisers will have to pay large sums to access their information:
“Golfer demographics are highly desirable. Well educated, motivated and active, they enjoy above average income and high levels of disposable income. Given that we bring advertisers a highly homogenous, highly affluent audience, about which we will be able to collect highly valuable data, we believe that advertisers will be very interested in presenting their message on the network” Source
The company will have bargaining power while negotiating with advertisers and golf courses. There are 15,000 golf courses in the United States, thus negotiating with them will not be an issue either. Furthermore, there will be many advertisers that could work with IZON as shown in the last annual report consulted.
“In addition, advertising revenue is expected to come from multiple sources and with millions of available advertisers the company does not expect to be dependent on any one advertiser” Source
Finally, another interesting feature of this company is the cost structure. Take into account that the company does not expend in fixed costs, and no capex is required. The most significant expense encompasses sales and administrative costs. In our opinion, if the application becomes viral and revenues grow in the future, the shareholders will appreciate that little investment is needed.
The revenue growth is already outstanding
In the last 10-k, we could already see that the revenues are growing at a high pace. While the revenue was worth $59,543 in 2016, the revenue line in 2017 was equal to $1,717,923. That represents a growth pace of more than 2,700%. In our view, if the company is able to maintain this level of growth for some time, we will be expecting the share price to creep up. Check the following table and also note that, as previously said, the Sales, General, And Administrative expenses are the most significant expenses and then the gross margin is also significant:
Please take into account that the table shown below includes the revenues received from Adzzup, Inc., a privately held Delaware corporation acquired with stock in 2017.
Market participants following the stock for some time should have expected the spike seen in 2018. The company has been showing signs of phenomenal growth for more than four months. For the first time, the company announced an exclusive agreement on November 8, 2017, that adds an additional 125 golf courses to its advertising network. The growth expected was large, more than 10,500 golf carts, outfitted with digital screens, in the IZON advertising network. That was not all. The company noted that its network would reach over 3.7 million golfers using its network for the 2018 golf season. In our view, market participants reading those numbers should have understood that something big was about to happen.
In line with the previous agreement, in January 2018, Oakcreek Country Club also installed a full IZON GPS solution. While the market is not celebrating the announcements with share price increases, we believe that it may do it in the future. Market participants many times only look at revenues and forget to assess this type of announcements. In our opinion, it is a mistake that gives us an edge over other market participants.
In addition, the fact that more people were interested in joining the company was also a good feature. On January 16, 2018, the company elected Tim Ummel as Chief Executive Officer. He possesses 20 years experience in the golf and advertising industries, TGT Sports Ventures, and Innovative Sports Ventures. Read the following words from another director:
“Tim is going to take IZON to the next level He is the absolute right person to lead IZON to our biggest stage of growth and has assisted us in creating our new strategic model for the future.” said Board Director Giles Somerville.
In addition, the Letter of Intent to acquire ProShot Golf was also remarkable. In our opinion, if the companies decide to merge, it will be positive for IZON. ProShot Golf owns a lot of expertise accumulated in providing low cost, fully reliable, communication, information, and course management systems for golf course owners and operators. It is a strategic transaction that could help the companies develop a better product. Thus, be sure to follow the negotiations between the two players.
Attorney Letter and Conclusion
Why did the market push up the share price as it received this attorney letter? In our opinion, some market participants have been following the revenues of the company, but they needed the confirmation of an external law firm. When a lawyer said that the accounts are fair, the market remembered the 2,700% growth pace and pushed up the share price.
To sum up, we believe that this is the beginning of the story, so stay tuned!
Disclosure: We have no position in IZNN and have not been compensated for this article.
Image courtesy of bfi Business Furniture Inc. via Flickr.