FingerMotion: Lots Of Pieces – What To Focus On Near-Term (NASDAQ:FNGR)

FingerMotion, Inc. (NASDAQ:FNGR) is a small technology company that has been very good at developing and leveraging relationships with Chinese telecommunications providers in order to provide solutions across a number of verticals in the sector.

It is also branching off into data services for insurance companies, evidenced upon its contract with Pacific Life Insurance earlier in 2022, and a recent collaborative research alliance with Munich Re for the purpose of improving risk assessment in the Chinese health and insurance market.

For some time, its SMS & MMS have been the key revenue drivers for the company, but it has come at the expense of margins, so the company is entering other verticals in the sector, and markets as mentioned above. This enables it to provide a better product and service mix which will offer significant improvement to its bottom line as revenues continue to grow.

In the short term, I see its new device protection service as the key positive catalyst, and it is close to fully rolling out that business in the near future.

In this article, we’ll look at FingerMotion’s recent quarterly performance and what the key drivers of the company will likely be in the quarters ahead.

Latest quarter

Revenue in the second fiscal quarter of 2023 came in at a record $4.98 million, led by its Telecommunications Products & Services business, where revenue was up by $1.10 million, or 64 percent from the second fiscal quarter of 2022. Total revenue was down from the $5.39 million in revenue generated in the second fiscal quarter of 2022.

Gross profit in the quarter was $417,784, down from gross profit of $696,856 in the second fiscal quarter of 2022.

Also contributing to positive revenue growth in the quarter was its Big Data segment, which was a modest $0.3 million, but up 91 percent year-over-year. That segment is expected to continue to grow in the quarters ahead. The increase was from the benefits of the new contract it signed with Pacific Life Re.

Offsetting that was a drop in revenue from its SMS & MMS segment, which plunged to $1.53 million, down 42 percent year-over-year. That was attributed primarily to the lockdowns in China during the reporting period. While this segment is expected to decline going forward, the decline in the quarter was much more than anticipated and should rebound in the quarters ahead, assuming the recent trend in easing up on lockdowns continues.

Net loss in the reporting period was $1.54 million, or negative $(0.04) per share, an improvement from the second fiscal quarter of 2022 of $(0.08) per share, or 6 percent.

At the end of the second fiscal quarter, FNGR had cash and cash equivalents of $2 million.

Its device protection business

I’m primarily focusing on this business in the article because it has the most potential to immediately impact the top and bottom lines of FNGR in the near term.

The two major business segments of the company as it stands at this time are its Big Data unit and device protection business, which according to CEO Martin Shen should be ready to roll out by the end of 2022. If the company can roll it out near the end of 2022 or early calendar 2023, it would have the potential to be a significant catalyst with a full quarter under its belt, assuming the numbers look good, which I think they will be.

Shen has noted the company is going to start with a soft launch before fully rolling it out. The launch will either be through China Mobile or China Unicom. Once the initial rollout is complete, the company plans on adding about 1 million users per month in the geographic footprints of each Chinese company. It should be kept in mind that this is simply the starting point of the protection plan; it could easily leverage out from there into the larger customer base of the two companies further out into the year.

Since this is a higher-margin business, it should quickly improve the bottom line of FGNR, providing in my option, a nice tailwind that should generate momentum in the first half of calendar 2023. The specifics of the rollout are it’ll be done in one province in the first month for a three-month period, a second province in the second month for a period of two months, and a third province in the third month, for a period of one month.

Once FNGR releases its guidance after the initial soft launch, it should generate a lot more interest in the company as the potential impact on its performance is clearer. I believe the immediate impact will be substantial, and as the year progresses should get even better.

Since there hasn’t been a lot said about its device protection business, I think it’s probably not being priced into the company at this time. It’s probably trading below its value.

I’m a little hesitant in drawing that conclusion because of FingerMotion’s soaring from its 52-week low of $0.62 per share on September 23, 2022, to its 52-week high of $9.79 per share on October 12, 2022. Even though it has pulled back significantly from there, it still may be trading too high based upon fundamentals.

With that in mind, it looks like if the company provides good guidance, after the soft launch of its device protection business, it should begin another upward move in its share price that will find a higher bottom and higher top going forward.

Conclusion

FNGR is a small company that has been able to make some strategic deals with some big players in the telecom and insurance industries, and it’s slowly starting to pay off in Big Data and should continue to do so in the quarters ahead, as well as the significant potential its device protection unit represents, which if executed well, should have an almost immediate impact on the performance of the company.

It appears, based upon the price movement of the stock over the last month, that the market is waiting for the soft launch and initial commentary and guidance from management. With it very likely to be positive, it’s going to probably light a fire under FingerMotion stock immediately afterward, giving it momentum heading into early 2023. Coupled with my expectations that Big Data is going to consistently add to the top and bottom lines of the company, this should be a strong tailwind for the company over the next year and beyond.

Besides the various segments and their future potential, the final comment I want to make is FNGR has a management team in place that is able to reach out to large companies and convince them to make deals with them. Its emerging product line and ability to make deals that provides solutions to these big companies may be the biggest competitive advantage the company has.

For now, the major concern I have with FingerMotion is that it doesn’t try to do too much too quickly. FingerMotion is positioned strongly for a growth surge, and hopefully it’ll build on the foundation it has already built, rather than expand into other markets.