Despite Setback, Motricity (MOTR) Has Potential - It Just Needs Execution

It was only a couple of years ago that smartphones were a novel curiosity. It will only be a couple years from now that smartphones - and all the accompanying technology that goes along with them - will be the norm. Motricity, Inc. (NASDAQ:MOTR) is one of those companies that's building the backbone to make that leap into the next era of mobile computing and communication.

Motricity is self-described as "a leading provider of mobile data solutions and services that enable wireless carriers to deliver high value mobile data services to their subscribers. We provide a comprehensive suite of hosted, managed service offerings, including mobile web portal, storefront, messaging, and billing support and settlement, which enable wireless carriers to deliver customized, carrier-branded mobile data services to their wireless subscribers."

While it's likely to be technically accurate, it also tells investors nothing about how or why MOTR would be a worthy stock to own. So, in English, here's a better look.

Though the company's description of itself feels annoyingly and needlessly vague, it's not - Motricity really does have a finger in several pies all along the mobile phone user experience. It works with mobile service operators, advertising agencies, and individual companies to help all of them generate more revenue by tapping into the wireless user market that's quickly becoming a content-consumption-focused herd. It can do anything from develop apps for an organization to display ads on a web page of a mobile browser to providing text messaging services to building a billing platform for wireless service providers. 

In other words, MOTR really is "all things wireless".

And, it's been more than a viable business model. The company has turned a top line $35 million in 2007 (and a loss of $60 million) into a top line of $133 million in 2010 (and a loss of only $20 million). More than that, it actually made into profitable territory in a couple of 2010's quarters. Not bad for a $92 million company.

While impressive to be sure, getting to the verge of profitability has proven to be easier for Motricity, Inc. than getting and staying above that hump. The company managed to narrow its loss (though didn't get back in the black) in the most recent quarter, yet trumped itself by suggesting the following quarter's revenue wasn't looking as good as originally expected.

Still, there can be little question that the MOTR business model is viable; it just needs a catalyst. That said, it's not like it needs a huge one.... but it does need one.

The price/sales ratio right now is a strangely low 0.6. That, in turn, means even the smallest of profit margins could be a big deal for this stock. Though 2012's expected EPS of $0.86 may be a little out of reach considering Motricity only earned $0.07 (operating) for the first half of 2011, even half of 2012's forecasted $0.86 would still translate into a forward-looking P/E of 4.6. And, with the company's per-share profit of $0.39 in 2010, that's not an out of reach target.

By almost any standard, these are bargain prices. Yet, MOTR has been more than a little challenged of late. So what gives?

For starters, the mere $0.07 worth of profit for the first six months does raise questions about whether or not the future will reflect the past. Or, maybe it was the fact that the coming quarter for Motricity Inc. is expected to be accompanied by a swing back into the red (a $4 million loss on a not-so-bad revenue of about $32 million). The undercurrent of all that, however, is said best a snippet from the latest SEC filing...

"The Company's outlook for the third quarter has been impacted by new competitive dynamics in the international markets, continuing lower levels of North American carrier professional services work and lower managed services revenue, partially offset by accelerating mobile marketing and advertising revenue growth."

Welcome to the world, Motricity, where if you're making good enough money for long enough, competition WILL arise.

Given the valuation (created by a stunning over-reaction from the market), we still view MOTR as a compelling longer-term idea, provided it can consistently prove itself on the profit front. That's somewhat a function of revenue, but not nearly as critical as expense control. More than anything though, at least the business model has shown it can be viable.

Here's the SEC filing page.