The recent bits of news have been very interesting, because MCOM is following a pattern of development that I've seen countless times with other companies. Here's the typical story:
The Little Guy company has a great new product idea that has the potential to develop an entire new market. Little Guy is able to tap the equity market to raise a pile of cash, because investors see the potential market. Larger companies stay away because there is no market now, only a potential future market. Little Guy is left alone to spend their cash, first on product development, and then market development. The Little Guy stock price usually peaks around the time they make their first sales. A few quarters later they have developed a small market. Their pricing is set low to help grow the market, but high enough to realize a profit in the future, once the market has grown quite large. Losses get worse as sales grow, because the gross margin is negative. The stock price falls because of the continued and growing losses, and also because Little Guy must constantly sell new shares to support the cash bleed.
All this time, larger companies have been keeping an eye on the potential market being developed by Little Guy. Right around the time it looks like Little Guy is going to get their first profitable quarter, the First Big Competitor announces entry into the market. Since the First Big Competitor knows they lag behind Little Guy, they decide to use price competition to catch up. For a while, Little Guy is able to maintain their higher prices and hold on to existing customers, and will have a couple of near breakeven quarters. The Little Guy stock price is lower than when they were a development stage company. First Big Competitor is winning market share by getting most of the newcustomers. Once First Big Competitor wins about a 25% market hare, they start getting the long-term customers from Little Guy. Little Guy losses rise and their stock price plummets.
If the market really does blossom into a huge market, then Second Big Competitor joins the fray. They are really worried about lagging behind First Big Competitor, so they plan to buy Little Guy and get a jump start in the market. By that time, Little Guy stock is a tiny fraction of what it had been, so it's a good value for Second Big Competitor.
So, where is MCOM in this cycle? They are not yet close to profitability and First Big Competitor has not yet arrived. Or have they? MCOM has been spinning the MSFT / QCOM announcement as affirmation that MCOM has a great idea. Well, yes, MSFT and QCOM are coming because they smell a real market. However, when they arrive they will be the First Big Competitor. Both MSFT and QCOM have a reputation for operating at a loss in order to win market share. MCOM sees what's coming, and figures they need to go out and find Second Big Competitor now, before the price war begins. That's a smart move on their part, but the problem is that Second Big Competitor never arrives until the market is really proven to be large enough. I think we'll see direct competition from MSFT / QCOM before there's any hope for an MCOM buyout. Look for MCOM to sink to $1-$2, with an eventual buyout around $2-$3. |
