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MySQUAR: it’s all kicking off, let’s take a proper look

By Cynical Bear | Friday 19 May 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

I feel partly to blame for the ongoing war between the bears and bulls on MySQUAR (MYSQ) as I started covering the company at the start of the year on this site with a piece that was largely a writing exercise to see if I could write 400 words without using the letter ‘e’ (HERE). So I thought I’d better give it a more considered view now as I do have a bit of relevant expertise.

No, I am not half Myanman; but I did use to sit on the board of one of the few successful billion dollar companies in the social gaming space and considering that is where MySQUAR makes most of its money today, it should have some relevance.

To be clear, I understand that MySQUAR, theoretically, has other strings to its bow, with its Fastsell and CallHome applications; however, it admits itself that these are not generating material revenues at the moment, although they could, and other than selling some technical development services into the fintech space, its revenue is largely being generated by various social games.

First point to make is that it is a tough business to make money in. There are very few companies which have made money in social games as it largely depends on being able to come up with a hit that makes it in to the top 20 games on Apple’s Top Grossing chart.

If one looks at one of the leading quoted businesses in the space, Zynga (NASDAQ: ZNGA), which has had its issues since IPO, although is still valued at $2.8 billion, one can see that it isn’t easy to make money. Zynga’s Q1 earnings came out earlier this month showing that it can’t actually make money despite its size and scale.

Q1 revenues came in at $194 million, but then come the deductions. 30% of it goes straight away to Apple and Google (or Facebook for non-mobile) for their cut of the revenues. In fact, Zynga’s cost of sales is slightly higher at about 33%.

Then, it is critical to understand how much the revenues are marketing driven. The ROI on marketing spend is one of the most crucial bits of data for these companies. Zynga’s Q1 marketing expense was $46.6 million, so it is generating revenue at a multiple of 4.2x its marketing expenditure….and yet its bottom line is still an operating loss of $9 million.

Two observations in respect of MySQUAR here. Looking at its recent interims, its marketing and selling expenses were $357,000 compared to a total revenue of $341,000. That is never going to be a sustainable business model!

The second point is that much excitement has been created by the announcement recently that in the first week of May, revenues increased to an average of $5,000 per day; however, unless one knows whether the related marketing spend was $10,000 or $50,000, I’m afraid it is just a meaningless figure to be used (quite successfully) as ramping fodder.

In addition, MySquar isn’t Zynga which gives me one other concern, which is that its games focus primarily on Myanmar which is a pretty small market in global terms. I can’t think off the top of my head of any successful game that is focussed on one region only.

I’ll make one other observation which is that although Beaufort Securities is shouting its target price of 21p from the rooftops, I thought it was interesting to see that it cashed in all 9 million of its warrants at 3.5p this week, no doubt making about £150,000 in the process!

One can tell from my earlier pieces that I was a bear on this at much lower prices than it is today, so it’s not going to be much of a shock that I still am a bear at the current price over 5p. I hope though that the above provides a bit more colour to my thinking - and until I see evidence of traction with some of the other revenue streams or see a positive ROI on its marketing spend of somewhere approaching 5, I’m staying well clear.

Good luck to all those embroiled in the battle between good and evil though!

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