Look for Margins to Grow as Adisn is Phased Out

Look for Margins to Grow as Adisn is Phased Out

Ken Nagy, CFA

CrowdGather, Inc. (CRWG) is an Internet company that specializes in the development and hosting of forum based Web sites. The firm endeavors to monetize a network of online forums and message boards. Forums remain a much undervalued part of the internet pie with $4.5 billion and CrowdGather is the only public company dedicated to monetizing this area. More page results equate to more revenue as page views have jumped from 12 million to 155 million per month through several mergers.

On June 10th 2010 CRWG announced that it acquired Adisn, a next generation Digital Ad Agency that uses relationship data from the social web to enhance targeting, for $5.5 million. The largest acquisition in CrowdGather’s history at the time, CrowdGather issued 4,621,849 shares of common stock for the purchase.

Adisn operated as a wholly owned subsidiary of the Company. The business model consisted of Adisn negotiating advertising rates with its customers and then purchasing ad inventory from real-time advertising exchanges and online publishers at a lower cost, thus capturing the difference as net revenues.

Further, the idea was CrowdGather’s unfilled ad inventory would also provide zero cost advertising inventory for Adisn’s performance campaigns thus generating incremental revenue for CrowdGather. With Adisn, CrowdGather effectively achieved two objectives: the acquisition of proprietary ad server technology that can create vertically targeted channels for brand advertisers by delivering campaigns across the hundreds of thousands of hosted forums on CrowdGather’s forum network; and the speculative addition of a two-person sales force in order to explore Adisn’s performance marketing business for a 12 month period. CrowdGather decided to move away from Adisn’s agency business prior to the end of the first year and has now moved its focus onto the Adisn ad server technology platform.

Replacing Lower Margin Revenue
The first quarter of 2012 marked the firm’s transition away from non-forum revenue sources and it was apparent in the margin lines. Gross margin was strong, resulting in a 24 percent year over year increase in gross profit from $181,350 to $225,296 for the first quarter of fiscal 2012. Gross margin jumped from 54.9 percent in the first quarter of last year, up to 67.5 percent for the three months ended July 31, 2011. Along the same lines, CrowdGather has restructured its efforts into pursuing revenue mainly from its forum network and expects to deploy its ad server technology across its hosted forums in an effort to capture higher margin revenues.

The first quarter of fiscal 2012 marked the last quarter CrowdGather will recognize revenue from the Adisn agency business. Going forward, it will replace that lower margin revenue with higher margin revenue from ads placed throughout its forum network. In the coming months, Management also hopes to deploy its ad server technology across hosted forums to enable CrowdGather to capture revenues from what is now a minimally monetized component of the business.

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