It’s been hard to ignore the recent activity surrounding NeoMedia Technologies, Inc. (OTCBB: NEOM) as the global mobile barcode management solutions provider has seen incredible trading volume over the last three sessions and their share price jumped from a low of 0.0087 last Tuesday to a six-month high of 0.0585 on Friday. While the run-up was certainly impressive Monday’s reality has been a bit colder as those share prices have fallen to a low of 0.0280 and are currently moving around the 0.030 level and trending down.
Triggering the activity surrounding NEOM, which included Thursday’s volume of 180 million, Friday’s volume of 287 million and today’s volume that has already surpassed 161 million, has been a promotional campaign highlighting the potential of the company. Potential may be a key attribute for a company but in the case of NEOM investors should also recognize that the potential is being challenged by significant competition in the mobile barcode solutions industry.
This competition has been recognized by NEOM as evidenced by their language in their most recent quarterly report released last November. NEOM identified their sales strategy as “the maximization of our patent portfolio through IP licensing, and the second is our focus on partnering with key mobile marketing agencies and/or brand and agencies direct to maximize the reach of our barcode management and infrastructure solutions.”
On the IP portfolio front NEOM noted that they had sixty one issued and pending patents and that they had always licensed their portfolio to others in the ecosystem, “however our current IP licensees have generated significantly less revenue for the organization than we had anticipated.” They then stated, “We are hopeful that our IP licensing activities will begin to show significant results, in the form of new IP licensees, beginning in Q4-11.”
As for their focus on partnering with key mobile marketing agencies and/or brand and agencies NEOM has found that partnerships don’t always equate to significant revenue. Their quarterly reported noted “Our platform has generated more than 72,000 mobile barcodes for use in marketing and advertising campaigns worldwide and usage on the NeoSphere platform has reached record heights this year for us, experiencing an 1800 percent growth rate over the same time period in 2010. While these figures represent significant successes for NeoMedia, we believe that downward price pressure is occurring in the market given the congested competitive environment for mobile barcode solutions as well as the ‘battle’ between free and fee based solutions. In order to encourage brands to trial mobile barcodes in their campaigns, we have offered free or low cost trials in order to compete and grow the overall market for mobile barcodes globally. We are hopeful that many of these trials will translate into production deployments over the short term.”
So NEOM is finding that the “congested competitive environment for mobile barcode solutions as well as the ‘battle’ between free and fee based solutions” is the cause of their less than impressive revenue to date; the question is can they overcome these obstacles and truly become what they claim to be, “a global market leader in 2D mobile barcode technology and infrastructure solutions that enable the mobile barcode ecosystem world-wide.”
The answer to this question may be coming soon as NEOM announced earlier this week that they had launched the updated NeoReader barcode-scanning software applications for Apple iOS, Android, BlackBerry, Symbian and Windows Phone 7 users and these applications are now available from the Apple App Store™, Android MarketTM / Google PlayTM, BlackBerry App World™, Nokia Store and Windows® Marketplace “for users to transform their devices into barcode scanners and seamlessly connect to mobile content.”
Among the features of this updated software: the ability to send email, SMS and make phone calls directly by scanning appropriate codes; redesigned user interfaces for simpler and improved navigation; optimized graphics performance in viewfinder mode as well as enhanced autofocus and snapshot support; faster 1D and 2D barcode scanning; and a new ‘copy to clipboard’ functionality for scanned codes. Investors should expect some kind of update from NEOM regarding the number of downloads from this launched update and if the company wants to secure confidence from those investors the numbers better be impressive.
NEOM has said it themselves, this is an extremely competitive environment right now and while they may have a management and infrastructure solution that includes their barcode reader (NeoReader) as well as their barcode infrastructure solutions (NeoSphere), to this point they have failed to capitalize monetarily on their technology. Looking at their Barcode Reader product sales for the three month period ended September 30, 2011 there is definitely cause for concern as they brought in $19,000 compared to $22,000 for the same period one year earlier. While neither figure is encouraging, the fact that there was a decrease makes the problem even bigger.
What NEOM has going for them is the revenue they generated from their Barcode Management and Infrastructure which totaled was $107,000 for the three month period ended September 30, 2011; that compared to $5,000 for the same period in 2010 represents a 2,000% increase. The reality is NEOM’s greatest revenue source is their patent licensing agreements which accounted for $380,000 of the $528,000 in revenue they reported for the three month period. The problem NEOM is facing is the fact that even this revenue is slipping a bit as they noted revenues related to patent licensing agreements were $892,000 and $899,000 during the nine months ended September 2011 and 2010, respectively.
Investors should be cautious when it comes to NEOM for the simple fact that the results of their operations haven’t been the catalyst for their recent activity but rather a promotional campaign. As that campaign fades and the company falls short of delivering strong growth then that share price could quickly tumble back below a penny.