Hipcricket Inc (OTCBB:HIPP) Gains Confidence
Quite a lot of positive developments have happened around Hipcricket Inc (OTCBB:HIPP) in the last month or so. As we mentioned in our previous article, they signed partnership agreements with a couple of huge global enterprises (Mondelez International Inc (NASDAQ:MDLZ) and Google Inc (NASDAQ:GOOG)), they published the latest 10-Q which revealed that they have managed to increase their revenues year-over-year while cutting down on some of the costs and, more recently, an investment bank called Ladenburg Thalmann Financial Services (NYSEMKT:LTS) initiated a coverage on HIPP, giving the stock a “Buy” rating as well as a $1.50 per share price target.
The news of Ladenburg’s report hit the wire on Thursday and it certainly had its effect on trading during Friday’s session when the ticker jumped by 21%, registering a dollar volume of about $394 thousand. On the whole, however, the performance has been somewhat hesitant considering the massively positive news coming out of the company HQ. The question now is: “Will HIPP be able to show a more sustained growth in the future, or will it continue to hesitate?”.
Well, at the current value of $0.57 per share, the market cap stands at a touch above $88 million which might be a bit of a stretch for a company that, according to the latest 10-Q, has around $2.2 million in negative working capital, more than $120 million in accumulated deficit and $3.3 million in net loss for the quarter. This, however, is sometimes dismissed by penny stock investors, especially when there are some signs of progress which seems to be the case with HIPP.
The problem is, the optimistic press releases and the coverage initiated by Ladenburg have sent the expectations for a massively positive quarter sky-high. Although the prospects look good, any problems that might occur and result in a less-than-perfect statement will probably depress the price of what looks like an extremely volatile stock. Most likely, this will prompt some of the more risk-averse investors to wait in the wings until they get some cold hard evidence of sustained progress in terms of operations.
Another factor that could influence the chart movement immensely is to be found in the Legal Proceedings section of the latest 10-Q. In it, we read that HIPP have initiated a couple of patent infringement lawsuits against big companies like Yahoo! Inc. (NASDAQ:YHOO), Millennial Media, Inc. (NYSE:MM), AOL, Inc. (NYSE:AOL) and Time Warner Inc (NYSE:TWX). Settlement discussions are being carried out with MM while the rest of the proceedings are currently pending. Without a doubt, a positive outcome of the lawsuits will result in a better-looking balance sheet as well as a surge in the share price. If something goes wrong, however, the effects will be adverse.
And you shouldn’t forget that HIPP‘s former legal council, Shaub & Williams LLP filed a complaint against the company which is also pending. The lawyers seek recovery of $2.2 million in attorney fees and this amount could land a massive blow to the financial statement as well as to the company credibility. More news around this trial should come out in January when a status conference will be held.
In the meantime, the shareholders are concerned with the dilution that they’re forced to endure. Like most penny stocks, HIPP is still working at a loss which means that they’re forced to raise money through the sale of equity. On October 4, they closed their latest financing transaction when they sold a total of 23.8 million shares at a price of $0.40 per share. The stock wasn’t ridiculously discounted considering the price a month ago, but the current values present an opportunity for a profit. What’s more, if the losses continue over the next periods, the shareholders might be forced to deal with some more dilution which could scare potential investors away.
On the whole, the financial statement for the next quarter should give us a better understanding of where the company’s heading. Until it comes out, the stock performance will probably remain just as unpredictable as it has been over the last month. The email alerts from Momentum OTC and Research OTC (both outfits say that they haven’t been compensated for the coverage) add another layer of risk which is, we reckon, well worth considering before putting your money on the line.
