Updated: 5/3/2013
Financials
Zarlink was bought for $632 million (9/22/11)
If you watch the videos below, Terry says his first big success was with Mitel, which made a hit in touch tone phones. The problem was the receiving end of the tone signal. He solved that problem and sold lots and lots of phones. Oddly enough, here he is again decades later. The touch tone phone became a handset became a softphone, a software interface and an endpoint. With CounterPath he returns to his roots in the new state-of-the-art device which the user receives or makes his phone calls.
Interview with CEO of CounterPath, Donovan Jones
BNN Interview Aug 09, 2012
Branham300 Executive Interview
Covington
(see Fixed Mobile)
Target Stock Price
Risk
CounterPath Signs Software License and Distribution Agreement with
NTT Software (10/31/2012) - CounterPath's main business has been setting up enterprises with
their own networks. In this agreement with NTT, Nippon Telegraph and Telephone, which is the
largest phone network in the world, will pay CounterPath royalties for enterprises it sets up with
CPAH's software. I take this to be a money announcement.
Zacks #1 Rank Additions for Monday (09/24/2012)
AT&T and Verizon Are Progressing in Transformation to
Data Transmission Utilities (06/19/2012)
CounterPath Announces Softphone.com (03/26/2012)
Bria for iPad Wins British Award for Most Innovative Product (03/22/2012)
Stock Buyback (02/16/2012)
Bria Wins Awards for iPhone, iPad and Android apps (01/09/2012)
Rogers One Number Beta (12/20/2011)
Rogers Wireless "One Number" Launch - Upping the Stakes (12/14/2011)
Facebook Is to LinkedIn As Skype Is to CounterPath Corp. (08/03/2011)
Why the Major the Telecoms Are in Trouble (06/29/2011)
Updated: 05/03/2013
Updated: 11/12/2012
Updated: 04/13/2012
Updated: 03/31/2012
(CPAH, CCV.TO)
Abstract
The telephone industry is ripe for a dramatic makeover. All calls will be routed through the internet, and new services like video calls will be available for anyone with a computer or smartphone. CounterPath is well-positioned to provide the front-end or interface software, which is the software that sits on the computer or smartphone and conducts these new video internet calls.
CounterPath has also developed important system software. The one-ID patent, which can ring muliple phones at once. CPAH also developed software that will allow users to switch calls from expense cellular minutes to cheap internet calls at WIFI hotspots.
The reason why CounterPath is particularly well-positioned is because all the important telephone equipment providers have a relationship with it - Cisco, Alcatel-Lucent, Ericsson, Broadsoft, Metaswitch, Avaya, and Genband.
1) CounterPath, CPAH, makes telephone video apps to run on computers and smartphones for business (also called enterprises like Amazon and Citibank) and system operators (such AT&T, Sprint, and Verizon) which run over the internet, and the internet is the path where telephone service is going. CounterPath already has apps which run on iPhone, iPad, and Android, and has already won awards.
The video telephonic capability for computers has been available for years. CounterPath makes an industry-wide accepted version of the interface software (like Skype), but Skype is proprietary software, which will not inter-connect with the rest of the industry.
CounterPath has also developed important system software. The one-ID patent, which can ring muliple phones at once. CPAH also developed software that will allow users to switch calls from expense cellular minutes to cheap internet calls at WIFI hotspots.
The reason why CounterPath is particularly well-positioned is because all the important telephone equipment providers have a relationship with it - Cisco, Alcatel-Lucent, Ericsson, Broadsoft, Metaswitch, Avaya, and Genband.
Salient Points
1) CounterPath, CPAH, makes telephone video apps to run on computers and smartphones for business (also called enterprises like Amazon and Citibank) and system operators (such AT&T, Sprint, and Verizon) which run over the internet, and the internet is the path where telephone service is going. CounterPath already has apps which run on iPhone, iPad, and Android, and has already won awards.
The video telephonic capability for computers has been available for years. CounterPath makes an industry-wide accepted version of the interface software (like Skype), but Skype is proprietary software, which will not inter-connect with the rest of the industry.
2) Server software allows users at Wi-Fi hotspots to switch from expensive cellular minutes to cheap over-the-internet minutes.
3) CPAH is starting up a network to connect video users of corporate networks to allow members of one network to call another. Thus, employees of Amazon (a CounterPath customer) will be able to make video calls and "see" an employee at Citibank (another CounterPath customer). A Skype network for business.
4) Ownership closely held. As of the last 10K, insiders own 57%. Employees have options. Everyone is motivated.
5) Will not run out of money. Sir Terry Matthews made a billion selling companies to British Telecom and Alcatel. Fidelity Investments took $5 million (over 5% of the company) of the most recent financing.
6) Competitors have been eaten up by Google and Microsoft (see below).
7) CounterPath's Bria is the defacto standard for telephone's front end for the enterprise. It is the interface of choice. Its award-winning technology is used by all the big vendors - Cisco, Alcatel, Ericsson, and Avaya among the older vendors, and Broadsoft, Metaswitch, and GENBAND among the newer competitors. Telcos and enterprises are getting proposals that all use the same front-end (interface software) - CounterPath's Bria, in a distribution pattern internet telephone blogger, Andy Abramson, calls swarming, When the major carriers finally upgrade their networks, CounterPath's Bria is may well be the standard for the entire industry.
8) New sales will be driven by video for mobile - iPhone, iPad, and Android. The iPhone app is available now with the others coming on stream in the next few months. Although these apps are not available yet, they have already won awards.
8) New sales will be driven by video for mobile - iPhone, iPad, and Android. The iPhone app is available now with the others coming on stream in the next few months. Although these apps are not available yet, they have already won awards.
9) A basic review of the financials below show revenues going up and losses going down. Though one would assume that expenses will go up to build the Skype for Business network. (But also remember Skype went for $8.5 billion).
10) Rogers, a Canadian wireless and cable provider with $12 billion in revenue, has announced its One Number service featuring CounterPath one number patents and video technology. See promo here. This will showcase their technology on a true telephone system, and should lead to additional sales.\
11) Balance Sheet is strong. No debt, $12.8 million cash, very slow burn rate (no burn in the prior quarter), the development work is done, and warrants may bring in some more cash in the next few months.
10) Rogers, a Canadian wireless and cable provider with $12 billion in revenue, has announced its One Number service featuring CounterPath one number patents and video technology. See promo here. This will showcase their technology on a true telephone system, and should lead to additional sales.\
11) Balance Sheet is strong. No debt, $12.8 million cash, very slow burn rate (no burn in the prior quarter), the development work is done, and warrants may bring in some more cash in the next few months.
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Liquidity Warning
There is no liquidity in the stock. In the past year, trading has not exceeded 90,000 shares in any one day in America. Many days it has not traded at all. So, exit is difficult. Investors must invest for the long term, either substantial profitability or buyout. With the company only achieving break even in the most recent quarter of its eight years of its existence, substantial profitability appears a distant target. Since a number of investors have large positions acquired in various fundings and can only cash out through a buyout, it would be safe to assume this is the logical goal of management. Nevertheless, a conservative posture would require investors to assume a 3-5 year holding period.
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There is no liquidity in the stock. In the past year, trading has not exceeded 90,000 shares in any one day in America. Many days it has not traded at all. So, exit is difficult. Investors must invest for the long term, either substantial profitability or buyout. With the company only achieving break even in the most recent quarter of its eight years of its existence, substantial profitability appears a distant target. Since a number of investors have large positions acquired in various fundings and can only cash out through a buyout, it would be safe to assume this is the logical goal of management. Nevertheless, a conservative posture would require investors to assume a 3-5 year holding period.
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State of the Telephone Technology
All telephone calls will ultimately be routed through the internet. This means that all telephone calls will become VOIP (voice over internet protocol) calls.
This was made abundantly clear when Verizon announced on January 10, 2009 that it would route all calls through the internet by 2016. Ultimately, we believe that all phone telephone conversations will be routed over the internet.
This is an announcement considerable magnitude. It means they will either cannibalize their present hardware, or convert what they have to internet traffic, through DSL lines, for example. It is reminiscent of Intel when it would cannibalize one of their microprocessors when a new one came along. They could have milked the old CPU for a year or two more, but they moved on.
This vindicates the way forged by Vonage because it means that all its calls will be over the internet.
CounterPath Products and Services
Telecom Software
User Endpoints – interface software for computers and cellular phones.
The Bria software below is installed on a computer or cell phone very much like Skype.
Bria
Bria Android Edition
Bria iPad Edition
Bria iPhone Edition
System Tools (Server Tools)
Client Configuration Server - used by a system operator
to configure endpoints (such as CounterPath's Bria)
to configure endpoints (such as CounterPath's Bria)
Network Convergence Gateway for Mobile Operators
Network Convergence Gateway for Wireline Operators
The company has in the past supported operating systems such and Symbian, Linux, and Blackberry/RIM, and it may still have older software which still uses these operating systems, they are now supporting those with the largest following - Windows, iPad, iPhone, and Android. Though it is clear that if important new operating systems get a big enough following, such as Windows8 for Mobile or RIM get a large following, they will develop applications for telephone which support those operating systems.
The company has in the past supported operating systems such and Symbian, Linux, and Blackberry/RIM, and it may still have older software which still uses these operating systems, they are now supporting those with the largest following - Windows, iPad, iPhone, and Android. Though it is clear that if important new operating systems get a big enough following, such as Windows8 for Mobile or RIM get a large following, they will develop applications for telephone which support those operating systems.
Telephone Network for Business (Enterprise
This is the network that CounterPath is setting up to connect the various networks they have established individual businesses. Thus, their customer Amazon will now be able to do video calls with Citibank. This would be, in effect, an instant Skype-for-Business network.
This network has never been formally announced, but it was mentioned in a company blog (see below, The Evolution of X-Lite). The network may be called X-Lite Connect. X-Lite is a free product, a prior version of their flagship Bria software. Facts: 500,000 downloads per month by December of 2009. So, if it has continued at this rate, that would be 6 million downloads for 2010, and another 3 million in 2011. Since this product has been out there since 2006, there must be at least 10 million downloads of the software on computers.
After the network is established, it could be expected that the company will monetize it with perhaps at first yearly charges, but perhaps ultimately monthly charges.
(see Skype is to Counterpath, see Evolution of X-Lite)
Company History
2002 Incorporated
2004 Xten Networks acquired, which developed video softphones
2007 NewHeights acquired, sales of enterprise telephone solutions
2008 FirstHand acquired
Fixed Mobile Convergence (FMC) solutions from FirstHand will enable Counterpath carrier and enterprise customers to deploy an integrated solution that extends communications from the personal computer to most major mobile devices.
2008 Bridgeport
Technical discussion: BridgePort BridgePort BridgePort
2008 Stock Consolidation, 5 shares exchanged for every 1 share
Financials
Revenues by Quarter
Revenues Income
04/31/04 232,848
07/31/04 487,151
10/31/04 677,364
01/31/05 920,608
04/31/05 1,037,754
07/31/05 827,296
10/31/05 1,086,101
01/01/06 1,237,932
04/31/06 1,467,850
07/31/06 1,760,881
10/31/06 1,672,793
01/31/07 1,007,528
04/31/07 1,283,739
07/31/07 1,226,791 -1,211,237
10/31/07 2,444,711 -1,782,643
01/31/08 2,634,763 -2,719,273
04/31/08 2,780,763 -6,009,597
07/31/08 2,612,760 -5,835,352
10/31/08 3,016,830 -6,576,385
01/31/09 2,030,061 -2,519,932
04/31/09 2,173,450 -4,725,415
07/31/09 2,050,457 204,343
10/31/09 1,900,607 -1,472,345
01/31/10 1,363,418 -1,672,777
04/31/10 2,702.375 1,052,942
07/31/10 2,219,585 -1,647,266
10/31/10 2,567,663 -829.570
01/31/11 3,022,102 -435.563
04/31/11 3,230,948 9,628 10K
07/31/11 2,758,734 -972,775
10/31/11 3,473,853 -254,774
01/31/12 3,485,871 -150,456
04/31/12 4,365,038 -1,051,093 10K
07/31/12 4,387,768 706,972
10/31/12 3,562,787 -293,248
01/31/13 3,266,088 -163,582
04/31/13 4,023,280 -28,923 10K
07/31/13 2,859,487 -1,225,291
07/31/04 487,151
10/31/04 677,364
01/31/05 920,608
04/31/05 1,037,754
07/31/05 827,296
10/31/05 1,086,101
01/01/06 1,237,932
04/31/06 1,467,850
07/31/06 1,760,881
10/31/06 1,672,793
01/31/07 1,007,528
04/31/07 1,283,739
07/31/07 1,226,791 -1,211,237
10/31/07 2,444,711 -1,782,643
01/31/08 2,634,763 -2,719,273
04/31/08 2,780,763 -6,009,597
07/31/08 2,612,760 -5,835,352
10/31/08 3,016,830 -6,576,385
01/31/09 2,030,061 -2,519,932
04/31/09 2,173,450 -4,725,415
07/31/09 2,050,457 204,343
10/31/09 1,900,607 -1,472,345
01/31/10 1,363,418 -1,672,777
04/31/10 2,702.375 1,052,942
07/31/10 2,219,585 -1,647,266
10/31/10 2,567,663 -829.570
01/31/11 3,022,102 -435.563
04/31/11 3,230,948 9,628 10K
07/31/11 2,758,734 -972,775
10/31/11 3,473,853 -254,774
01/31/12 3,485,871 -150,456
04/31/12 4,365,038 -1,051,093 10K
07/31/12 4,387,768 706,972
10/31/12 3,562,787 -293,248
01/31/13 3,266,088 -163,582
04/31/13 4,023,280 -28,923 10K
07/31/13 2,859,487 -1,225,291
Revenues by Year
04/31/05 3,122,877
04/31/06 4,619,179
04/31/07 5,724,941 -3,370,952
04/31/08 9,086,900 -11,722,750
04/31/09 9,883,101 -19,657,084
04/31/10 8,016,857 -1,887,835
04/31/11 11,040,298 -2,902,771
04/31/12 14,083,496 -2,429,098
04/31/13 15,239,923 221,219
04/31/13 15,239,923 221,219
Recent Financing
CounterPath raised $3,597,000 U$S on June 19, 2012. Probably this money was raised to satisfy requirements for a Nasdaq listing
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CounterPath raised $3,597,000 U$S on June 19, 2012. Probably this money was raised to satisfy requirements for a Nasdaq listing
= = = = =
CounterPath raised $5,636,171 in a private placement on June 14, 2011. Also, it appears the company received another $1,500,000 from the exercise of warrants. It is likely that this money was raised to fund the equipment necessary to create the X-Lite network.
Fidelity Investments took a position in CounterPath. If warrants are included, and it appears the warrants have been exercised, then Fidelity Canadian Growth Company Fund has 1,565,850 shares, and Fidelity Special Situations Fund has 2,214,150 shares.
http://www.sec.gov/Archives/edgar/data/1236997/000106299311003629/forms1.htm
Fidelity Investments took a position in CounterPath. If warrants are included, and it appears the warrants have been exercised, then Fidelity Canadian Growth Company Fund has 1,565,850 shares, and Fidelity Special Situations Fund has 2,214,150 shares.
http://www.sec.gov/Archives/edgar/data/1236997/000106299311003629/forms1.htm
Management
It is always a happy thing to see management with significant ownership. The CEO and other officers have plenty of options, and management and closely held shares own a majority of the company, and the Chairman, Terry Matthews, is the kind of man investors like to see at the helm.
Terry Matthews is one of the few who has made a fortune in the network and telephone area, and he has a record of building and then selling companies. He sold his first company, Mitel, to British Telecom. And he sold Newbridge Networks to Alcatel for $7 billion, pocketing $1 billion for himself. But it's important to remember that has a track record of investing in small telecom companies, and the number of deals is now more than 80.
Recent Terry Matthews deal info:Bridgewater
Recent Terry Matthews deal info:
Zarlink was bought for $632 million (9/22/11)
If you watch the videos below, Terry says his first big success was with Mitel, which made a hit in touch tone phones. The problem was the receiving end of the tone signal. He solved that problem and sold lots and lots of phones. Oddly enough, here he is again decades later. The touch tone phone became a handset became a softphone, a software interface and an endpoint. With CounterPath he returns to his roots in the new state-of-the-art device which the user receives or makes his phone calls.
Terry Matthews Videos at the University of British Columbia:
Interview with CEO of CounterPath, Donovan Jones
BNN Interview Aug 09, 2012
Branham300 Executive Interview
Terence Matthews, COB 8,745,628 shares 22.5%
Steven Bruk 3,270,518 8.6%
Owen Matthews 2,348,419 6.2%
Donovan Jones, CEO 940,706 2.4%
David Karp, CFO 507,095 1.3%
Chris Cooper, Dir 118,760
Larry Timlick 80,659
Total shares above 21,652,026 57.0%
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Total Outstanding 33,100,000
Fully Diluted 41,300,000
Patents
The software that CounterPath makes is from public sources, so-called open systems. It is popular because there are few or no patents associated with it, making it cheap source code. The value of CounterPath is that they are able to put such code together reliably that works. It is one thing to have cheap software, and another to be able to make things work. CounterPath has expertise, and expertise is important in systems because things have to work near faultlessly or they are useless.
But along the way, CounterPath has developed some server software, also called gateway software or network software, which gives added dimension to their interface software. It is useful stuff for the corporations who are setting up their own networks.
Transfer of Calls from Cellular Networks to Wi-Fi (or internet) at Hotspots
Data Network Computing Device Call Processing, 7,656, 864 - The new patent covers the use of a mobile device’s ID – specifically, its mobile number (MSISDN/MDN) – to enable seamless transition of voice, data and multimedia sessions across disparate fixed and mobile networks which may include transition:
From legacy, circuit-switched infrastructure to a network based on IP Multimedia Subsystem (IMS) standards; and from a 2G or 3G cellular network to an-all IP network, such as LTE, Wi-Fi or WiMAX (Feb. 09, 2010)
(see Fixed Mobile)
Single Number for Cell or Landlines
Circuit Switched Cellular Network to Internet Calling with Internet Antennas, 7,804,821 – assigning a single-number identity across muttiple devices and networks. (Sep 28, 2010)
This technology has been picked up by Rogers in Canada. See promo of how the Single Number patent works. www.rogersonenumber.ca
Presence - Knowing If a Party is Available, and Least Expensive Routing
Presence Detection for Cellular and Internet Protocol Telephony, 7,809,381 – “a graceful way to automatically select the best network connection based on the user’s location, the patented mechanism enables services such as least-cost routing and minimizes dropped calls by streamlining the process of transferring calls from the cellular macro network to Wi-Fi or femtocell.”
Platforms (operating systems)
The company’s website says it only supports Microsoft and Apple operating systems, but the 10K from prior years has also included Linux, Symbian, and Rim:
Windows 2000
Windows XP
Windows Vista
Mac OS X
iOS
Android
Customers
Counterpath makes most of its money from its customers who are re-sellers. Cisco early turned up on a 10K as the largest of the re-sellers with 14% of CPAH's revenues. But CPAH also sells direct to end-users in the enterprise market (i.e. they sell to large businesses who set up their own corporate networks), such as Amazon and Citibank, and it also provides to the system operators, such as AT&T and Verizon. The list is stunningly all-inclusive, though there have been few complete deployments of its software. Vonage, for example, uses their software, but video is absent.
Re-sellers (AKA Partners) to the Enterprise
Alcatel
Avaya
Broadsoft
Digium/Asterisk
Cisco
Ericsson
Iskratel
Juniper
Metaswitch
Mitel
NEC
NTT
NTT
Polycom
Acme Packet/Oracle
Acme Packet/Oracle
Direct Enterprise
Genesys (Alcatel)
Amazon
Bosch
Citibank
Coca-Cola
Coca-Cola
System Operators
Most of the system operators are customers in name only, and few have made real deployments of the new VOIP products. Rogers, in Canada, is one of the first sizable deployments of all of CounterPath's technology.
Most of the system operators are customers in name only, and few have made real deployments of the new VOIP products. Rogers, in Canada, is one of the first sizable deployments of all of CounterPath's technology.
AT&T
Earthlink
Mobilkom Austria
PT, Portugal
Sprint
Telmex
Verizon
Vonage, deployment
8x8, deployment
Rogers (Canada), deployment
Competition
It is hard to tell how many competitors CounterPath has. Many of CounterPath’s customers have been acquired in the race to get this key technology:
Teleo – bought by Microsoft in 2005
Grand Central – bought by Google in 2007
Grand Central – bought by Google in 2007
Gizmo5 – bought by Google in 2009
Jajah - bought by Telefonica in 2009
GIPS – bought by Google in 2010
Mirial - bought by Logitech in 2011
Skype - bought by Microsoft in 2011
Mirial - bought by Logitech in 2011
Skype - bought by Microsoft in 2011
Mirial was bought in July 2011 by Logitech. Note: Mirial already has video for Android and iPhone/iPad, and others. But their focus seems to be conferencing.
It is hard to make intelligent remarks about competition, but the article comparing VOIP systems at Wikipedia may be useful: Comparison_of_VoIP_software
Potential Suitors
CounterPath has a spectacular list of customers that counts just about every important telephone company and telephone equipment supplier on the planet, which is why we claimed above that its interface is the de facto standard for the industry. So, the first place to look for a potential suitor is among CounterPath’s 250+ customers:
Oracle becomes a possible buyer with its purchase of Acme Packet. CounterPath has worked with Acme Packet on a couple of accounts, and Acme used CounterPath's Bria to showcase better-than-Skype performance. We think that Acme used Bria at the Barcelona Conference in a collaboration with China Mobile.
http://www.fierceenterprisecommunications.com/story/acme-packet-teams-counterpath-take-skype/2013-02-21
Notice a day later, it is announced that Acme Packet is running a demonstration with China Mobile:
http://news.acmepacket.com/articles/279977/acme-packet-together-with-china-mobile-enables-td-/
It is not such a stretch to believe that Acme Packet ran the demonstration on CounterPath's Bria.
Avaya/Silverlake is certainly possible. Avaya bought Ubiquity, a server solution for SIP (softphones) from Terry Matthews, why not buy the client or endpoint or user software from Terry?Silver Lake
http://www.fierceenterprisecommunications.com/story/acme-packet-teams-counterpath-take-skype/2013-02-21
Notice a day later, it is announced that Acme Packet is running a demonstration with China Mobile:
http://news.acmepacket.com/articles/279977/acme-packet-together-with-china-mobile-enables-td-/
It is not such a stretch to believe that Acme Packet ran the demonstration on CounterPath's Bria.
Avaya/Silverlake is certainly possible. Avaya bought Ubiquity, a server solution for SIP (softphones) from Terry Matthews, why not buy the client or endpoint or user software from Terry?
Cisco was one CounterPath’s early big customers, and uses their software in their Unified Communicator. They might prefer to own it than license services from whoever else might buy it. But other suppliers could also want CounterPath, such as Alcatel, Broadsoft, Metaswitch, or GENBAND (which took over Nortel's client list.
There is a very good reason why one of the Baby Bells or other carrier may get off square one and buy it – AT&T, Verizon, BT, Deutsche Telecom, Sprint, Telmex. AT&T and Verizon will spend $18 billion apiece on capital expenditures. AT&T's network has been busting at the seams since it brought out the iPhone. Mobile video, which is coming on, will be another assault on its network. Carriers may wish to divert traffic away from their 2G/3G networks and funnel that traffic through the internet at Wi-Fi hotspots to make the traffic over their mobile networks more manageable. Or perhaps to delay or defer or curtail some of the capital expenditures. If a Tier One carrier could defer $1 billion of expense, what would they pay to allow switching networks at Wi-Fi hostspots, to re-route traffic away from expensive new 4G networks? $10 million per year? $20 million? $30 million?
It's possible a consortium of major telecoms might decide to buy it so as to assure reasonable access. Apple recently led a syndicate to buy the patent portfolio of Nortel. And Steve Jobs was toying with a Wi-Fi network for a couple of years, perhaps Apple might want the patent and the software.
It's possible a consortium of major telecoms might decide to buy it so as to assure reasonable access. Apple recently led a syndicate to buy the patent portfolio of Nortel. And Steve Jobs was toying with a Wi-Fi network for a couple of years, perhaps Apple might want the patent and the software.
But a buyer could come from out of nowhere. IBM might decide it would like to be an important player in telecommunications, or Oracle, or Microsoft, or Google. I don’t think it’s going to be an oil company or steel company, but many of the companies above just mentioned could easily manage an acquisition.
Target Stock Price
The overall dreary stock market has made the prospects for any stock rather gray, and this includes start-ups like CounterPath.
That background comment made, the stock price target I believe will vary with the company’s progress. At present, I do not believe management will settle for less than $10 per share. This is the target price for a software company that could be used to outfit all of American telephone companies with video and additional internet services that can be made available cheaply by use of the internet. This could be a low target price considering the size of the possible market, I failed to mention the international market, and their customers likely include far more companies outside America than inside.
It appears that CounterPath's build out of its X-Lite Connect network will serve initially to showcase their product. While Skype is free, it is not likely this new service will prove to add much to the bottom line. But it is important to note, free is not a profit model, and Microsoft is losing as much as $2 billion a quarter on its internet initiatives. At some point Microsoft will throw in the towel, or start to charge for service. When that occurs, CounterPath could make out very well. But that could prove to be a long wait. Microsoft is still generating very good profits even blowing $2 billion a quarter.
However, when that changes, if only 1 million (out of a possible 10 million or more) paid $20 per year for the service, that would be $20 million, and it would triple revenues. It would likely all fall to the bottom line, against 40 million shares, that would be $.50 per share. If all 10 million took the service, that might be $200 million. If 2 million took the service, that would be profits of $1 per share, which look pretty good for a stock selling not much above that.
There is the possibility that if the service is very well received, that CounterPath could begin charging like $20 per year for a service that is secure, and permits a bunch of enterprise connections that would be a hassle to duplicate on Skype.
However, when that changes, if only 1 million (out of a possible 10 million or more) paid $20 per year for the service, that would be $20 million, and it would triple revenues. It would likely all fall to the bottom line, against 40 million shares, that would be $.50 per share. If all 10 million took the service, that might be $200 million. If 2 million took the service, that would be profits of $1 per share, which look pretty good for a stock selling not much above that.
There is the possibility that if the service is very well received, that CounterPath could begin charging like $20 per year for a service that is secure, and permits a bunch of enterprise connections that would be a hassle to duplicate on Skype.
Risk
No small technology company is without risk. Our job as investors is risk reduction. Here are the reasons why I think the risk is minimum:
1. Terry Matthews, a telecommunications entrepeneur is the driving force and largest owner of CounterPath, has pockets deep enough to carrry it through to buy-out or profitable operation. And apparently he is able to interest others - as per above, Fidelity Investments has a significant position.
2. CounterPath is in the sweet spot. All telephony business is going to the internet (VOIP), CounterPath has the critical endpoint interface app VOIP software, and patented network software.
3. Hard to tell how many competitors are in its telecom software space. Many have been gobbled up. It certainly seems like there are few competitors among publicly owned companies, though it is hard to gauge how many there are in the privately-owned sector. And there is that World War I factor - The Firstest with the Mostest. Meaning that it would a new competitor a while to establish that its software is carrier reliable. Basically, "carrier reliable" cannot fail. CounterPath's product has been tested over and over, and is well-established in the internet area.
4. The company as of 5/3/2013 has a market cap of $77.54 million (Yahoo). Tiny, tiny, tiny. Think compression. The patents alone might be worth that.
5. It is hard to decipher how much has been invested in this technology, but Bridgeport invested $50 million. FirstHand and CounterPath have invested tens of millions more. Think compression.
Discussion: It could be argued that Microsoft way overpaid for Skype. That Ebay couldn't get it to work and wrote off most of its exposure, that Skype's software is proprietary, and therefore, not very valuable because no one else will use it. That its architecture which is based on nodes and the use of its subscribers' computers will ultimately turn off possible users and buyers. And in the end, Ballmer is not a tech guy, doesn't understand what he is doing, and that this will be more of the stuff that Microsoft will deep six when revenue streams for tablets exceed PCs, and MSFT finally has to face realities. And so this would be an argument against a high value for CounterPath.
But CounterPath is a software company first and foremost. It is the most important vendor of the open systems SIP telephone architecture that Big Business is using and that Big Telephone will subscribe to. That it is nearly making a living selling systems to the enterprise market, and the systems operators have still done virtually nothing, and will need such expertise.
CounterPath Gets Mention
http://www.counterpath.com/counterpath-announces-renewal-of-normal-course-issuer-bid.html (03/14/2013) Renewal of the company's stock buy back program.
http://www.counterpath.com/acme-packet-counterpath-partner-to-give-operators-the-solution-to-ott-threat.html (02/12/2013) CounterPath announces that Acme Packet is a new partner.
CounterPath and Altibox Announce Launch of Norway's First
Operator-Based OTT Service for Consumers (11/08/2012)
http://www.counterpath.com/counterpath-announces-renewal-of-normal-course-issuer-bid.html (03/14/2013) Renewal of the company's stock buy back program.
http://www.counterpath.com/acme-packet-counterpath-partner-to-give-operators-the-solution-to-ott-threat.html (02/12/2013) CounterPath announces that Acme Packet is a new partner.
CounterPath and Altibox Announce Launch of Norway's First
Operator-Based OTT Service for Consumers (11/08/2012)
CounterPath Signs Software License and Distribution Agreement with
NTT Software (10/31/2012) - CounterPath's main business has been setting up enterprises with
their own networks. In this agreement with NTT, Nippon Telegraph and Telephone, which is the
largest phone network in the world, will pay CounterPath royalties for enterprises it sets up with
CPAH's software. I take this to be a money announcement.
Zacks #1 Rank Additions for Monday (09/24/2012)
AT&T and Verizon Are Progressing in Transformation to
Data Transmission Utilities (06/19/2012)
CounterPath Announces Softphone.com (03/26/2012)
Bria for iPad Wins British Award for Most Innovative Product (03/22/2012)
Stock Buyback (02/16/2012)
Bria Wins Awards for iPhone, iPad and Android apps (01/09/2012)
Rogers One Number Beta (12/20/2011)
Rogers Wireless "One Number" Launch - Upping the Stakes (12/14/2011)
Now all the iPhone needs is a decent SIP softphone client (09/22/2011)
Rise in VoIP networks prompts enterprise softphones adoption (09/28/2011)Facebook Is to LinkedIn As Skype Is to CounterPath Corp. (08/03/2011)
Why the Major the Telecoms Are in Trouble (06/29/2011)
Updated: 05/03/2013
Updated: 11/12/2012
Updated: 04/13/2012
Updated: 03/31/2012
Updated: 01/09/2012
Updated: 12/20/2011
Updated: 12/14/2011
Updated: 12/14/2011
Updated: 12/07/2011
Updated: 12/02/2011
Tom,
ReplyDeleteSir Terry Matthews is famous for having his success as a savvy investor based on one compelling principle: He talks with potential buy-out suitors BEFORE he commits to a particular tech company to determine what they need. Then he buys a controlling interest in the start-up company and reconfigures it to meet the needs of the potential suitors, all but ensuring that the new company gets bought out. He has done this with great success over 90 times with only 6 failures.
CounterPath is only one of the 3 such companies he has deigned to place his name on their management Board as Chairman or CEO. This tells you that he is serious about ensuring CounterPath's success. In addition, his son Owen Matthews is the Vice Chairman of CounterPath's Board. Sir Terry WILL NOT let his son Owen fail!
We KNOW CounterPath will be a huge success. What we don't yet know is Sir Terry's time table. But recent events suggest that the time is getting near for the share price to rocket higher in anticipation of a buy-out.
This company is the real deal, and this may be the investment opportunity of a life time.
Thanks for your well thought out analysis.
Doug Schott
Full disclosure: CPAH shareholder