While it’s hard not to look at a struggling company like Motricity, Inc. (NASDAQ: MOTR) and think maybe there’s a chance they could rebound and produce a nice return on investment sometimes the best thing to do is just quickly move on to the next thought. There is a reason why MOTR has crashed from a 52-week high of 23.09 last February to a mind-numbing 52-week low of 0.75 on January 18, 2012, they have almost no value to the market they are trying to serve. Of course that’s never a reason for investors to shy away from a gamble and on Thursday shares climbed as high as 1.06 before closing the day at 0.87 following an impressive trading volume that topped 6.2 million.
Investors may have been inspired by news that MOTR had adopted a plan to exit its business in India and the Asia Pacific Region. According to the January 19, 2012 8-K filed by MOTR, a provider of mobile data solutions and services that enable wireless carriers to deliver mobile data services to their subscribers, “The decision to exit its operations in India and Asia Pacific region was based on the resources and cost associated with these operations, the intensified competition in the region and the Company’s decision to streamline its operations and focus on its mobile advertising and enterprise business, while at the same time recommitting some of its resources to its North American carrier operations.”
Of course the press release issued by MOTR detailing the plan to exit its business in India and the Asia Pacific Region had a spin, stating the company “has taken significant steps to reorganize the company in order to capitalize on changing customer and market conditions. As part of the realignment, the Company has decided to close its operations in Asia. This shift will enable Motricity to concentrate efforts on the burgeoning opportunity the Company sees in the mobile advertising and enterprise space, while continuing to provide focused service to the largest carriers in North America.”
Perhaps the most telling point of MOTR’s recent press release was their comment pledging to invest in product development, saying “Work is underway on the next version of products designed to expand Motricity’s current suite of solutions and services.” In the minds of many this is where MOTR dropped the ball a long time ago, they simply didn’t prepare for the smartphone revolution.
While MOTR has an impressive list of mobile phone carrier customers, including AT&T, Sprint Nextel and Verizon, their business of delivering targeted marketing and advertising was essentially designed for the feature phone market, not the smartphone market. Whether or not MOTR simply underestimated the appeal of the smartphone or not is irrelevant at this point, the fact is they may be too late to the party to make a meaningful impact for investors.
In all likelihood MOTR saw that they were in trouble with the smartphone but were hoping that its popularity would be restricted to certain geographical regions. As it turned out smartphones, to the surprise of nobody, are just as popular in India and the Asia Pacific Region as they are in North America and across Europe, essentially crippling MOTR’s business.
The decision to move out of India and the Asia Pacific Region may save MOTR considerable money it will come at a cost. According to MOTR “the costs associated with the exit from its operations in India and Asia Pacific region to amount to approximately $2.5M on a pre-tax basis. Included in these costs are severance costs of approximately $1.5M and contract termination costs of approximately $0.5M partially offset by termination fees from XL. Other costs include associated legal, accounting and tax costs. Substantially all exit costs are expected to be incurred as cash expenditures. The Company expects to complete the exit from these operations by April 2012. As a result of this exit, the Company expects close down its offices in Singapore, Malaysia, Indonesia and India as well as its data center in India and to reduce its global workforce by eliminating all of its employees in the region, which as of December 31, 2011 amounted to 135 employees.”
Additionally, MOTR noted, “The Company may face administrative and regulatory hurdles in the exit process, the process may be longer than anticipated and the Company may incur significant unexpected expenses in connection with the wind down of its operations in excess of its estimates.”
Interim CEO Jim Smith has done his best to reassure investors, stating “As a company, we have made significant adjustments to our cost structure, organization and strategy. Given our depth of talent, rich history in mobile and strategic focus on mobile enterprise and advertising, I’m confident that the changes we’ve instituted will help deliver enhanced shareholder and customer value,” the truth is the adjustment and changes may be too late.
For those investors who see the low share price and the cost cutting measures being taken by MOTR as a risk worth taking it should be remembered that there are countless examples of former companies who failed because they couldn’t adapt to the market they were serving.