There's a real hunger and demand for an alternative to the existing hierarchy of social media platforms as Phunware's (PHUN 1.92%) stock recently illustrated.
The possibility of former President Trump creating an alternative to Meta (formerly Facebook), Twitter, and even Netflix sent shares of the advertising software provider stratospheric even if they did ultimately return to Earth on the realization a viable option is years away from reality.
With Phunware's stock trading at triple the price it started the year at and over 600% above its low point, is this former penny stock a buy not just at these levels but at all? Let's find out.
A mobile marketing guru
Phunware builds online marketing campaigns for companies. It says it's not a mobile development shop but rather a software-as-a-service (SaaS) platform for mobile capabilities. Its purpose is to help brands define, create, launch, and monetize their mobile identities in such a way that consumers will increase their interactions with them, creating an "internet of experiences," as Phunware terms it.
That sounds good, but what does it mean practically? Phunware is trying to create a standardized platform for a business to quickly establish a mobile presence in the way Amazon.com serves as the backbone for much of the cloud infrastructure.
Phunware seeks to establish itself as the premiere provider of a fast, reliable means of developing and launching a brand identity.
Seeking out customers that can make a difference
Despite what had been an overlooked stock with a puny valuation, Phunware is not actually some fly-by-night operator. For example, Disney's (DIS -0.15%) Fox Networks Group had been a big client for Phunware in recent years, accounting for as much as 50% of 2019's revenue, or almost $10 million.
While that contract is finished, the mobile SaaS stock has since partnered with other significant corporations, including Carrier, Cox, and HID Global.
Phunware's intention is to target Fortune 500 companies for direct and indirect agreements and contracts, with particular attention paid to Fortune 100 members. Government partnerships at the local, state, and federal level are also in the company's sights, and a partnership with the Trump organization would likely give it as much publicity and name recognition as it could ever hope to deliver in return for that favor.
Like nailing Jell-O to a wall
And that's part of the problem with respect to Phunware's recent stock action. It was based solely on conjecture related to Phunware's assistance with Trump's reelection campaign last year rather than any actual new business dealings.
Trump himself only painted broad strokes for what he wanted them to represent. While that was enough to send Phunware's stock (and Digital World's, too) off to the races, Trump caused the stock to crash the next day when he acknowledged that it's "both hard and expensive to build a new platform totally independent of Big Tech's infrastructure, it would have to be an extremely well-funded, multi-year undertaking"
It didn't help Phunware either that it immediately announced a secondary stock offering after shares headed toward the moon. The mobile marketing outfit said it will sell up to 5.6 million additional shares "at the market offering," bringing its shares outstanding to nearly 90 million. The company's desire to lock in enduring profits from the Trump spike is understandable, but investors didn't appreciate the resulting dilution of their stock holdings.
There's also the matter of Phunware tying itself to Bitcoin (BTC 0.04%). It owns about 127 bitcoins, acquired at an aggregate purchase price of $7.75 million. Plus, the company is issuing its own digital assets named PhunCoin and PhunToken, along with the PhunWallet.
A lot of risk in a little stock
There does seem to be a business opportunity for Phunware beyond whatever connection to President Trump there might be. Whether it can realize its grandiose plans for becoming the mobile standard for marketing remains to be seen, but some businesses do find its services attractive.
Certainly, a Trump partnership could boost its prospects but is also a dual-edged sword that might create partisan controversy with existing clients coming under pressure to distance themselves from the former president.
Also, almost all of Phunware's current market valuation is tied solely to the potential for a Trump organization affiliation. The market had assigned virtually no value to its existing media business.
That might have been too harsh, but the current stock price seems much too generous, so some Goldilocks middle ground is probably more appropriate. That just makes it too difficult to recommend Phunware's stock as a buy.