CMG Holdings (CMGO) is a marketing communications holding company involved in the acquisition and operation of companies in alternative advertising, interactive marketing, sports, entertainment, internet content publication and distribution technologies.
CMG’s subsidiary, The Experiential Agency, has provided most of its revenues, delivering in excess of $900,000 in 2011. The company recently spun out another one of its subsidiaries, AudioEye, a provider of computer and mobile applications that convert text to audio. AudioEye has applied for listing and CMG’s shareholders have received 5% of the issued shares of AudioEye as a dividend. CMG has retained a 15% holding in the new entity, a 10% after expenses and tax royalty on all income from operations, and any proceeds from the outcome of patent infringement settlements or awards.
CMG has yearly revenue of $7.44 million. Year-over-year quarterly revenue growth stands at 26.8%. In 2011, CMG had a gross profit of $2.25 million, net income of -$8.62 million and loss per share of -$0.09. The company has total cash of $606,760 and total debt of $3 million. Float is 192.5 million shares with no institutional holdings, with management holding 23.4%, according to its 10Q for the first quarter of 2012.
According to research by Wall Street Resources, CMG is led by an experienced group of principals who have held senior level positions with several of the largest and most successful companies in the sports management and entertainment industry. The company has built on these strengths to represent companies and individuals and content on every available platform for marketing in traditional print and media sectors as well as fine tuning the marketing and branding to provide representation across all online, social and crowd sourcing mediums.
Artist representation has changed just as everything else has. There is little money to be made purely on representation. The marketing and branding of an online and mobile presence are the best models to build value and to drive traffic to web portals, streaming media channels, and traditional television and film.
The representation of talent is a very fickle business, heavily dependent on ever changing consumer tastes, market acceptance and the ability to bring in big dollars on contracts. In its heyday, Wilhelmina International (WHLM) represented some of the most recognizable models of the 80’s, 90’s and early 2000’s. The company made big money on lucrative endorsement deals for cosmetic, clothing and accessory companies. The era of the supermodel ended when that batch aged out and sponsors looked to recognizable actors to endorse products. Everything has its time, and the era of astronomically paid models has passed except for a few notable exceptions, leaving those management firms looking for new ways to exploit its talent pool. Wilhelmina is still trying to find its footing in the cross marketing world and has dropped from its historic highs of $30 per share to current price levels of $0.12 per share. The stock has been trading below $1 since 2004.
World Wrestling Entertainment (WWE) is an entertainment complex which has its talent under contract. It is a marketing and advertising provider for all of its talent and ancillary products, which are also at the mercy of public tastes. The stock’s historic highs predate 2000 at over $25. The stock now trades at around $8.20 as the company looks for new and different ways to monetize its proprietary content and talent.
Success stories in the marketing and advertising services sector include Interpublic Group of Companies (IPG), and Constant Contact (CTCT).
Interpublic Group is a global advertising and marketing firm focusing on traditional advertising and marketing services as well as mobile and search engine marketing. Interpublic Group currently trades around $11, has a price earnings ratio of 10.51, earnings per share of $1.05 and pays a 2.3% dividend. The company boasts revenues of $7.2 billion.
Constant Contact is an online digital and events marketing company. It currently trades around $19, between a 52-week range of $15.66 and $32.18. The company provides event marketing products, along with email and social media marketing platforms which give clients the ability to manage and optimize their presence across multiple social media networks. The company also offers demographic tracking and metrics analysis tools to track and survey products.
CMG is following the strategies of Interpublic and Constant Contact by building out its business across new and different distribution and monetization channels. It wisely spun off AudioEye after recognizing that it was cumbersome as a subsidiary. It proved difficult for CMG to raise money for AudioEye as its business model was not complimentary to CMG’s core businesses of representation, distribution and marketing. Maintaining a royalty arrangement and rewarding CMG shareholders with stock in the new entity is a better way to go for CMG while it is establishing its business and building its brand.
I believe CMG’s management has made good decisions by spinning out AudioEye and concentrating on the more promising sectors of its business. The Experiential Agency has a great client roster including luxury brands and cable networks that are pleased with the campaigns. The Experiential Agency continues to attract and service a growing client roster across all media platforms.
Management’s next major task is to manage growth and make the company profitable. Can management read the market, make the right acquisitions, and focus the business to turn a profit? So far, it has made some tough decisions and managed to keep the company afloat through expanding on its expertise and meeting the needs of the market in terms of the campaigns it is running for its corporate and individual clients. It is branching out into internet distribution of content to further drive business to the company and this is a smart and measured move. It needs to build on its representation roster, which it is doing through The Experiential Agency and through the representation of literary and sports personalities.
I believe CMG Holdings has the potential to become the next Constant Contact or Interpublic Group. The company’s business model is similar and management has demonstrated its commitment to pushing the company forward since it became public. Management’s interest is also vested by its ownership of 23.4% of the company’s shares. It has provided solid quarterly revenue growth in the past year. The company does need to closely watch the amount of debt (in excess of $500,000) that is convertible. CMG Holdings will start making interest payments on some of its outstanding debt in October of 2012. If the payments can’t be met, the debt converts at $0.01 per share with interest. Interest on outstanding notes ranges from 2% to 12%.
CMG currently trades at $0.02, within a 52-week range of $0.01 to $0.15. It currently has negative earnings per share of -$0.09 and a market cap of $4.68 million. The company is taking advantage of all of the platforms that new mediums offer for marketing and content distribution. The company also has an experienced management team, strong talent and content, and an established track record of new, innovative and attention grabbing marketing campaigns. I urge investors looking for exposure in the marketing communications sector to conduct further research on CMG Holdings.
Transparency/Disclosure: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research. I am a consultant to a third-party and have received two hundred fifty dollars for independent research. Always discuss investments with a licensed professional advisor before making any financial decisions. Statements made herein are often “forward-looking statements” as stipulated under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. While I have researched this company thoroughly, my due diligence is not a substitute for your own.