Friday, February 27, 2009

Social networking and Gift Cards- Exciting Possible revenue

Targeting the Gift Card market was the original business plan for IdeaEdge (Socialwise) by "group gifting" using "social networking". This adds a whole new way of marketing and selling gift cards by using one of the most popular new forms of communication (Social networking).

Although I will explain in more detail, If you dont understand any part of this concept, please see the investor media from IdeaEdge. Jim Collas does a better job of laying it out.

The Social gifting business plan was before "Bill My Parents" (if you havent read that blog, its a must.) and is the basis of the company originally going public. "Bill My Parents"was originally a back up plan (imagine that?) mainly to solve a problem with group gifting (how to target teens).

Fortunately here we are today with two viable business plans that will all but guarantee IdeaEdge (Socialwise) success.

Gift cards are a HUGE and growing business. In fact, majority of all gifts given today are gift cards. They are more personal and safer than cash, and guarantee you wont screw up a birthday/wedding Etc. too bad.

This is where IDAE comes in.
IdeaEdge's platform allows people on social networks such as Facebook to donate toward a gift card of the recipients choice. This is done using a group gift concept (although it can still be individual). The gift card of choice (lets say "Gap clothing store") can be requested by the recipient or one of their friends or family (average user has 120 friends).

To hopefully help you understand I'll use an example:

Say its my birthday and I decide I want a Gap gift card. First I pick IDAE's application (Called the "Group Gift card") on my Facebook page, sign up, and request from my friends that they donate to the Gap card(Basically it tells them I want a Gap card for my birthday). Lets say you are one of my friends on Facebook. As one of my friends, your own Facebook home page tells you its my B-day, and encourages you to give to me using the Socialwise (IdeaEdge) application.

This simplifies the process of gift cards. Just think, even if my friends knew I wanted a Gap gift card, they would normally still have to go out and buy one. Then I get stuck with several Gap gift cards with various amounts. With Group Gifting it is all on one card that everyone donates too. What is even better is generally someone would be embarrassed to give a $5 gift card, but in a group setting on social networking it would no longer be viewed as cheap. In this climate being able to give $5 instead of giving more than you can afford (or nothing at all) is a real bonus.

Now, instead of 1 person giving me a $100 Gap gift card 20 people can give $5 and I still get a $100 Gap gift card or another of my (or someone else) choice! (amounts will vary on how many people give and at what amount).

Now some of you remember the launch of the "Gimme" application ( now "Group Gift") on Facebook that I mentioned earlier. What you need to understand is that application is only used as a "showcase" by the Socialwise to show the product to application such as Rock you (biggest application maker on all social networking sites) whom they have contracted with. Its kind of like how Sony usually sells its products through big companies such as Best Buy, Target, Wal-mart etc. but yet they have a few of their own Sony stores. As its not Sony's main business to be a retailer, it is not Socialwise plan to be one either.

IDAE then would receive around $10-$12 of the sale of that $100 gift card.
Best yet Socialwise (IdeaEdge) collects the proceeds, so no worries of companies not paying or trying to renegotiate.

But really thats not the plan, It gets much better...

On Facebook/Myspace (Joe Abrams former company) you can choose what applications you want to load on your homepage to personalize your experience. The best applications become the most popular ones. So rather than try to make 1 application to compete to use on Facebook, Myspace, Etc, IdeaEdge has decided to wholesale out the group gifting idea and split it with the top application makers. Not only does this eliminate IdeaEdges workload (building applications) but it puts that role of application design and ideas into the application makers (experts) hands. Now instead of having one application on Facebook with the group gifting platform, you have 20, 30, maybe more, all competing for the same audience, with IDAE getting a half of all of others efforts.
So how would an application work? It really depends on the idea, but one idea I heard was designing a "group Birthday card" that everyone "digitally signs" and writes in that includes a gift card. If you want to be a part of the birthday card, you would need to donate to the gift card. Thats just one idea, application makers are pretty amazing at coming up with unique ways to market.
A popular application will almost always have more than 4MM users (birthday calender has nearly triple that). So even if only one or two (of say 20-30) of the applications become popular, we still should easily see an audience of over 10,000,000 active users. What makes this unique is ALL application makers are very interested since all of them are trying to monetize social gifting. Nobody has monetized social gifting yet.

IdeaEdge is going to be the first company with a viable way to monetize group gifting...(read that again). Yes the first. Most of you probably dont even understand how big that is. It is huge. Remember back when search engines like Google were trying to figure out how to make money by indexing the internet? Once they did, it became a multi Billion Dollar industry. Same type of thing here.

If you understanding this business plan you should, right now, be extremely thrilled.

Now we need to look at some hard numbers on what IDAE can expect.

But before I get to that, let me give you the first important 2 numbers I want to talk about: 150MM+ users....this is how many people currently use social networking! Thats a pretty big audience. Companies pay billions to get in front of a target audience like that.

Now lets look at the next number: Gift cards are currently a $120Billion+(2006) annual industry.

How can IDAE (Socialwise) tap into this market in a realistic, not some "pie in the sky" way?

To answer this, First lets look at the competition and what they have done:

Blackhawk Network launched in 2002, and currently they are the number 1 in the gift card business. By their 4th year they had made $50MM in profit. The next year $90+MM. This is profit, not revenue. I have not seen revenue numbers, but typically profit is around 10-15% for a big company with thousands of employees like Blackhawk Network has. Even at 20% profit, that represents $250MM in revenue in their 4th year alone. At 10% profit that is 1/2 of a billion in revenue, which is far more likely than 20%. So in 4 short years in business, Blackhawk had captured $250MM-$500MM in revenue in an industry that is up 50% since they launched. Maybe you havent noticed, but gift cards are everywhere.

How did they do it? The right contracts and connections. If you look at Ideaedges connections and contracts, you can see they are positioning themselves much the same way (with Myspace and Facebook and aligning themselves with other big companies). These contracts for Blackhawk turned into a pretty good audience by their 2nd year. Their product was in front of millions by being at Safeway grocery stores checkout counter (I believe Safeway now owns Blackhawk). Instantly you had millions of possible customers walking by your product. Since then they have branched out into other stores.

Still their potential audience was no where near the 150,000,000 Socialwise will have from day 1! The one catch will be that although they have 150MM potential clients, the product will be somewhat hidden until those people hear about it. It would be like Blackhawk only having their gift cards at 1 checkout counter in Safeway. However whenever someone bought a gift card, Safeway announced it over the loudspeaker the gift cards location (essentially what Facebook and Myspace do).
Also note: people spend far more time on social networking per month than at a checkout counter at the store.

Whats more exciting is that IdeaEdge (Socialwise) profit will be double if not triple that of Blackhawk. Why? IDAE's super low overhead. Blackhawk needs thousands in employees to do what Socialwise (IDAE) can do with less than 20! Jim Collas believes the company can do nearly $1 Billion in revenue with just over 10 employees. There is no product to store, no employees to work where houses and setup, no applications to be programed. Very little will be done in house.

Now that we have looked at the industry, now lets get into realistic revenue that IDAE expects.

By 4th quarter 2009 (when the company should be producing revenue as per their plan) there will be 40,000,000 DAILY birthday alerts on social networking.

If IDAE captures a very realistic 1% (400K) of that daily market at an average of $7.50 per person ($5 - $50 is the range for gifting).

Revenue to IdeaEdge will be $161,000,000.

Is that realistic?
Consider that the revenue will (hopefully) be split between 20+ applications, or only 20K people per application. Again let me point out that the TOP birthday applications get 4,000,000+ daily users!

So, yes, not only is it possible, its pretty low end.

Using that line of thinking lets get more technical. Lets say that between all applications they were able to get 15MM monthly users (again very reasonable, The very top applications usually get this many each) that contribute (on average) $7.50 to a birthday/anniversary/wedding etc. per month.

Thats a cool $198,000,000 in annual revenue.

This is VERY realistic because whenever someone on Facebook or Myspace adds a application it will notify all of their friends that they joined that application (the average person has 120 friends). If they like it, they can also invite friends to try it. See how quickly this can grow?

Now the real question.

What does this mean for the stock?

Two fold:

Once IDAE (OTCBB:IDAE) starts showing revenue like this, they will attract quite the attention from the (Wall) Street. Typically a companies stock will trade 10-100 times its profit. In bad times its lower, and good, its higher. Right now these markets have slammed companies and pushed some good companies below 50 times profit,Example: Amazon is trading at approx. 30 times profit. Many companies make 0 profit, or even losses, and they are still trading, so investors look for companies that have high profit margin or stability and rewards them (Amazon does not have a very high profit margin).
Since Amazon is a internet company that supplies products, let me compare it to IDAE's sector.

So lets be VERY generous and say IDAE trades for only 5 times its profit. (This is low since investors will pay a premium for a start up company that is making 25%+ profit margins like IDAE should.) A fair number would even be 10 to 15 times...but I want to under sell my point....

So at $200MM in revenue, IdeaEdge should clear over $50MM in profit.

$50MM profit times 5 = a $250MM market cap.

$250MM market cap divided by 45 Million shares = over $5.50 per share! Or 14 times your money from these levels!

Again these are "dumbed down" numbers, I actually think the numbers will come in MUCH higher.

You might be thinking "But couldnt that take years to earn that profit?"

Yes, but do you think 10-15 times your money in a few years is bad?

We are talking "tech boom" type numbers. You think another investment will do that? What others? Real estate? GM's, Siruis or AIG's stock if they rebound...even another small cap? Good luck. I like the chances here (seeing what IDAE has already accomplished)

That being said, markets move down here(on OTCBB) on anticipation alone! Just the anticipation of the idea that IDAE will do $50MM in profit the next couple years can drive the price sky high! So $5 a share could be realistic in the shorter term as well.

What you need to consider is that these numbers are assuming "Bill My Parents (BMP)" FLOPS!

As I said before, I think BMP is MUCH bigger and better than group gifting (and so does IdeaEdges management as well as just about everyone who has seen both plans)

Take the low end of BOTH of these plans, "Bill My Parents"and group Gifting and realistically on the low end we are talking about a $7+ stock.

The high end being in the $40's. I actually dont think thats unrealistic if the company hits its goals. Thats a $1000 return for every $1 invested from the bottom levels! In that case does it really matter if it takes 5 years?

Now back to earth:
The Second way to get your Return on Investment- ROI)
An acquisition. Being that Joe Abrams AND Maynard Webb are very good M and A's (mergers and acquisitions) specialists, I think this is a far more likely scenario. Also keep in mind, great ideas like this rarely ever make it to market anymore. A big company is far more likely to pay top dollar to acquire a company like IDAE than let a competitor get it. Especially if there is a bidding war. I have no doubt that companies are going to be salivating over "Bill My Parents".

Payment systems alone are a hot ticket, with "Bill me Later" being sold in November for approx $940MM and Paypal selling for 1.8 Billion in 2002, both in down markets! The key with these was not revenue, but the number of users they had. (Bill me Later had only 3MM users).

Maynard Webb, who was the COO of Ebay at the time of the Paypal purchase has openly said he thinks IDAE has a better plan and service!

Not to mention that IDAE has two plans, not just one. That means one could be bought out, leaving us with a dividend check of say $5 per share and we still keep the stock!

I personally think a buy out is very likely, and that would happen quickly once they start building clients. Main thing will be to get the platforms out and get users on board. This could happen quickly (in a few months) or it could take a few years. Company plans on being profitable this year, and April/May will be big months to see how they hit their goals. In the meantime, this stock remains a STEAL!

Hope this helps you understand the company you invested in even more.
Feel free to ask any questions.

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