Location Sciences: recovery and growth play for 2021
Location Sciences (LON:LSAI), a world leader in location verification for mobile advertising, recently released a trading update for the current year (year-end Dec). The update covers the three product lines — Verify, GeoProtect, and Insights. We provide an overview of these on p2.
The update outlines the impact of the additional UK lock-down measures that have derailed the previously expected recovery in revenues for the Verify product. At the time of the interim results in September, Location Sciences reported a substantial impact from the second-quarter (Q2) lockdown measures, particularly concerning mobile advertising revenues from the restaurant and retail sectors, which essentially came to a halt. The same factors will now have an impact in the fourth quarter.
The weakness in Verify revenues has been partially offset by additional revenues for the Insights product, including a contract with the NHS (UK health department) to support pandemic modelling based on individual location data.
The news release also includes a new contract win for the company’s newest product, GeoProtect (previously Verify Audience), which has been selected by The Spoken Thought (trading as Mira), a leading audience segment supplier in the USA. Mira’s services allow advertising agencies to target mobile advertising campaigns at a specific demographic, including targeting individuals who have visited or who regularly visit a specific geographic location. GeoProtect will enable Mira to verify the location data. This is the second customer for GeoProtect, which was launched in the first half of 2020. We believe that the Mira contract on its own represents a significant revenue opportunity for 2021, as well as further validation of the GeoProtect product.
Cash resources sufficient through to 2022:
Importantly, the company also reports that its net cash position, roughly £1.2mln at November 30 is now expected to provide sufficient resources through to 2022. This forecast reflects a reduced cash utilisation rate due to further cost reductions and efficiency measures. We believe that this cash runway provides the company with the opportunity to begin realising a recovery in Verify revenues during 2021, and ramp-up in GeoProtect revenues, before needing to seek additional capital.
Trading update, contract win
Through the Verify and GeoProtect platforms, Location Sciences delivers unique solutions for location-targeted mobile advertising. Location verification is an increasingly important function within the US$160bn-per-year mobile advertising market. We believe that in the medium term Location Sciences is capable of generating revenues of over US$30mln annually.
We argue that the current market capitalisation does not reflect the company’s growth potential, notwithstanding the current pandemic-related challenges in the mobile ad space. We believe that the valuation could expand once mobile advertising spend begins to recover, which we expect during 2021. We now have increased confidence that the company can continue to fund its operations through 2021.
Conclusion
Location Sciences has three product platforms:
1) The Insights platform gives customers the ability to query a location data lake containing more than 40 billion data points. The Location Sciences Insights platform is partnered with X-Mode, the world’s leading location data provider.
2) Verify, the world’s first independent and media agnostic location verification tool, allows brands, media agencies and suppliers the ability to tackle the issue of inaccuracy and fraud in location-based advertising campaigns.
3) GeoProtect, like Verify, offers location verification for targeted mobile advertising campaigns. GeoProtect is used for ‘derived audience segment’ campaigns, which target an audience based on their historic location behaviours, rather than their real-time location.
Overview of the business
Three platforms
Source: Proactive Research