Saturday, May 16, 2009

HOW SCLW Can Be The Next Qualcomm QCOM

I can hear it now....."You're Crazy!" Socialwise cannot be a Qualcomm.

Dont say I am crazy just yet. At least give me a chance to explain.

Okay, I must admit, Socialwise may not have anything like what Qualcomm accomplished with its CDMA technology in 1990's, but I think "Bill my Parents" could make a comparable national impact.

But thats not what I want to compare. I want to compare SHAREHOLDER base and how Qualcomm became a stock market giant because of this principle.

(Theres another reason I picked QCOM over the hundreds of companies that I could compare to Socialwise, oddly enough its literally located right across the street from Socialwise's offices.)

Lets look at a little history:

October 1998. Qualcomm stock was sitting below $2.60. Company was moving forward and there was lots of excitement. The stock had slowly made its way from .47 to where it was above $2.50.

What was unique is the company wasnt making a lot of money as opposed to shares outstanding at the time. However it had a small outstanding share structure of 73MM (compared to its earnings of only 5.4MM that quarter) and a loyal group of shareholders. This was because its shareholder base was mainly comprised of employees who believed in the company.

With the key ingredients below, and the tech boom looming Qualcomm was prepped for a major run.

Heres what Qualcomm had going for it:

  • Small outstanding shares 73MM
  • Strong leadership- officers knew what they had, and how to manage. They also understood the stock side.
  • A great product that was going national/global. Everyone saw potential.
  • Relatively low overhead
  • Cash flow positive
  • Depressed stock market with investors looking for something new
  • Major companies looking to get involved w/QCOM
  • and most importantly a VERY loyal shareholder base.

Keep in mind, Im using QCOM just for example purposes, because, talking with Jim Collas, you quickly learn one thing...HE GETS IT. The CEO's that get it, and have a legit national product, CAN duplicate these types of results (maybe not to this extent).
Its not easy, but think of it as a mold. The most important part of that mold ultimately (with a publicly traded company) is the shareholder base. (more on that in a bit....)

A few months later, Starting in 1999 QCOM's stock, even while being heavily diluted, made this incredible run:

Ultimately the stock went from $3 to $90 in 13 months....and in a few years actually went from .47 to $90. That means the little small cap investor that bought $1000 worth at .50 had well over $150,000, and thats if he sold off 3 months after it peaked and headed down . That should open some eyes.

"How in the world does Socialwise compare?"

Well if you go by the above bullet points, Socialwise is only missing 1 key flow positive. However, that may only be weeks/months away. In fact overhead is SO low, that Socialwise could do very well this year after all, even if its only making money the last few months of the year.

But thats not the real issue. All these points are nice, but many companies have those ingredients and their stock fails to make much, if any, splash.

The number one reason for our success will be (large) shareholder retention.

This is why Socialwise is different. You have funds, investment bankers and investor relations teams that all have one goal in mind, shareholder retention. They are not out to make a quick buck and burn each other, but oddly enough are working together. This is extremely rare in the markets, and especially with start ups. They see the big picture.

How do I know? Well, I do know a few of those involved. But it also is obvious given the dropping of the stock and what did(n't) happen.
I must say, I actually believe the BEST thing that happened to the stock was it tanking to .30!

Let me explain:
After its all said and done, nobody burned each other. Now they(those involved on the stock side) know with out a shadow of a doubt, when the chips are down, they will stick together. They also know, the shareholder base is extremely loyal, so they wont have to feel the need to jump ship when things are going well.

If you dont have a good working knowledge of the small cap industry, the stock market and how most large shareholders, IR firms and investment banks work in this industry you might not understand or believe what Im about to say but...

With the conditions in the markets, SCLW should have tanked, much, much, much lower. We could have been under 5 cents, and definitely under .10, but possibly under .01. "Really?" Yes really...

But we are here because of 90% of the large shareholder base (10K shares plus holders) held firm. We had a few people jump out, but some of them are looking pretty bad right now. All and all its summed up by the biggest investors comment: "This is by far the most loyal shareholder base I have ever been a part of".

Good news is that the IR firm continues to look for loyal shareholders to bring in, including the institutional buying.

Do I see this going above $50 or $60? If I was to guess, I would say no. However NOBODY can tell, its all going to be about shareholder base, and the excitement generated by the product and ultimately emotions behind the stock. However, if this base remains strong, and the company does what it should do, even on the low end, there is NO reason we cant see $10+, even $15 to $20. I remain confident that we will see a 52 week high by the end of the year, and if the markets remain stable, $10+ by the end of 2010, and hopefully much sooner.

Buy into it or not, thats how this small company stock can ultimately compare to QCOM as a stock.

Am I crazy? Only time will tell.

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