For those new to Strikeforce, this one’s a cyber security technology play, with a focus on consumer products. It’s got a suite of products on the market right now, each of which targets a different aspect of IT tech. We won’t go into these products here as we’ve done so plenty of times before, but as a quick introduction, there are three primary products that comprise the company’s portfolio: ProtectID, GuardedID and MobileTrust.
The first is a two-factor authentication technology and the latter two are designed to protect against a range of cyber security threats – keylogging, clickjacking etc. – for both desktop and mobile devices.
Our thesis for this one to date has been this: that the company has spent a long time trying to get these products to market, and more specifically trying to get them in the hands of customers, but its efforts have been stymied somewhat by a muted consumer demand for cyber security (outside of the standard anti-virus type products). Right now, however, cybersecurity is a hot topic. Trump, Russia, North Korea, Democratic email leaks – all these things are keeping security in the mainstream news, and this sort of exposure is going to (and already is proving to) filter through to mainstream public conscience.
And the recent release from Strikeforce reinforces this thesis. Management pointed towards the threat of security breaches being taken far more seriously now by all operators than ever before, and that the company is positioned to take advantage of this shift in perception is – in our eyes – indicative of a real chance for upside revaluation.
So what did the numbers tell us?
For the year to December 31, 2016, Strikeforce pulled in a little over $384K in revenues. This compares to the $271K reported a year earlier – a 42% increase across the period. That’s not great in terms of top line, but it’s a decent shift up, and we expect that the numbers should really start to inflate this year in line with the above mentioned increased demand in the market.
Next earnings are due to hit press mid May, and while they’ll be well worth keeping an eye on, we’re not expecting fireworks. The real ramp up is going to come during the second half of this year, as the company’s retail channels start to filter through to revenue collection. As such, if the numbers are perceived to disappoint (which may be the case), any dip on the response could be a nice opportunity to pick up a discount exposure on a misinterpretation, ahead of realignment when the later quarters’ numbers hit press.
There’s also the potential for litigation related windfalls. This company won out against Microsoft Corporation (NASDAQ:MSFT) at the beginning of last year when it fought to reinforce the validity of a two factor authentication patent. This patent is now subject to seven new litigations, and with the Microsoft win in place to serve as precedent, there’s a good chance that Strikeforce could announce a one off payment, or royalty compensation type agreement, or both, at any time over the next few quarters.
Nothing’s guaranteed, of course. There’s always a dilution risk at this end of the space, especially when it comes to a tech company trying to establish a product suite in a growing market. Strikeforce is going to need funds to expand into its potential (setting aside the potential for any litigation income for a second) and this capital is going to come from equity issue, in all likelihood.
At its current market cap, however, there’s a lot of room for value add before a raise is necessary, and any run should help to offset the impact of an issue longer term.