Look up the words “genius” or “pioneer” in the dictionary, and there might as well be a picture of Tim Berners-Lee plastered next to them.
He’s the British computer scientist who invented the World Wide Web in 1989.
Not a bad accomplishment!
Since then, of course, the internet has morphed into the greatest technological creation of our lifetime.
But in its current form, it still suffers from one fatal flaw…
Although it’s meant to be accessed by everyone around the world, it’s still not accessible to those with some types of disabilities – or one in five Americans.
Fortunately, there’s a new innovation to tackle it, courtesy of this promising up-and-coming company.
One that just emerged from my C.H.A.O.S. screener with a top-notch score…
See the Web… Hear the Web
Founded in 2005, AudioEye (AEYE) develops patented voice technology that enhances web-based data and converts it into accessible formats for people who have trouble reading or hearing content.
And it does this in real time, so users can interact and communicate with material, or make transactions on the spot.
As for the company’s prospects… well, let’s take a look…
At first glance, AudioEye’s profitability would send the average investor running for the hills.
Net income is in the red, and heading deeper. The company lost $1.1 million in 2012, followed by $2.8 million in 2013. In Q1 2014, AudioEye lost $1.4 million, compared to $396,086 in Q1 2013.
And with only $492,000 in cash, it doesn’t have much of a safety net if the going gets tough.
But let me tell you why AudioEye doesn’t send me running…
I’m looking for chaos.
And to do so, it means assessing early-stage companies that are just starting to dip their toes into the water. Having only been founded in 2005 and gone public in April 2013, AudioEye has barely even taken off its socks.
That’s why I always look deeper to get the real story. And my research indicates some strong potential.
For starters, take a look at AudioEye’s extraordinary top-line growth…
As you can see, the company’s cost of sales isn’t the reason for lack of profitability. In fact, it lowered that expenditure in the first quarter.
So why the abysmal bottom line?
Well, I believe AudioEye has only just reached a tipping point. It’s just starting to see demand for its technology. As a result, it just started ramping its business higher, too. Hence the 6,292% rise in its sales and marketing expenditure, and 275% jump in administrative costs.
And it didn’t even have R&D spending in 2012 – a number that hit $130,000 in 2013.
At face value, AudioEye looks to be just another over-the-counter stock struggling to stay alive.
But the reality is different. It’s merely experiencing the growing pains of a small, young company. One that’s now starting to see demand for its technology and services.
The question is: Can management drive AudioEye forward effectively from here? That’s unknown at this point.
C.H.A.O.S. Meter: 14/20
AudioEye’s cloud-based software-as-a-service (SaaS) technology gives impaired users interactive audio-equivalent or video-equivalent versions of websites on both desktop and mobile platforms.
In making digital content accessible to everyone, it also allows companies to comply with government regulations.
The technology can be customized according to a user’s disability. So if a company only publishes text, AudioEye converts it into audio. If it only publishes audio, AudioEye converts it to text or video with subtexts.
And its software takes a wide range of disabilities into account…
- Blindness, partial vision loss, color deficiencies, deafness, and those who are hard of hearing.
- People with reduced motor control, or a decline in cognitive abilities.
- Foreigners who aren’t fluent in their new country’s language.
- People with learning disabilities or low literacy levels.
Shockingly, many websites don’t provide this kind of service for disabled web users, mainly because there isn’t an all-encompassing tech solution.
Until AudioEye’s technology started to fill this hole in the market.
When I look for companies with “high impact” technologies, I’m not just looking for the likes of Apple (AAPL). I’m also looking for companies that are creating entirely new markets. AudioEye’s technology does just that – with heavy patent protection on it, too.
C.H.A.O.S. Meter: 19/20
Since AudioEye is such a small company, any positive financial news should send shares higher. That’s exactly what happened after a press conference containing preliminary second-quarter numbers – shares rose by 124%.
In addition, any new partnerships will further validate AudioEye’s technology and boost shares.
A recent example is the company’s partnership with PromotionPod, a consumer packaging outfit that addresses the retail and coupon markets.
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However, the biggest catalyst for AudioEye is politics.
You see, while most companies usually need to inspire change in order to boost their market potential, AudioEye sits on the compliancy side.
In other words, nothing needs to change for the firm to realize its full potential. In fact, AudioEye actually has the government fighting for its cause. In today’s increasingly digital world, compliancy regulations are becoming more stringent.
This government-fueled catalyst will prove to be AudioEye’s greatest source of acceleration.
From an investment standpoint, keep in mind that as a penny stock, AudioEye is susceptible to some wild swings, both up and down.
C.H.A.O.S. Meter: 19/20
AudioEye’s management is monetizing its technology by selling it to federal and state governments, corporations, universities and colleges, as well as advertising sales and royalties from licensing contracts.
The good news? The company is seeing some success – as evidenced by its strong top-line growth.
The bad news? AudioEye doesn’t have many customers yet.
For fiscal 2013, it only had three customers account for the majority of its sales.
On the “sales of services” side, two customers accounted for 81% of its revenue. Other customers covered the remaining 19%.
On the licensing side, one customer generated 70% of AudioEye’s revenue, with the others making up the remaining 30%.
I’m sure you can do the math here. If anything negative happens to one of these relationships, the drawbacks would be crippling.
However, AudioEye is making moves to beef up its client list…
In September 2013, AudioEye agreed to a contract with the Vail School District in southern Arizona. In doing so, its technology is helping nearly 12,000 students – from kindergarten to Grade 12 – across the Vail community’s 20 individual websites, along with the main district-wide site.
AudioEye has also established a partnership with Government Sales Specialists (GSS), as it looks to expand within all areas of government. The orders here have helped business increase by 360%.
Not all of AudioEye’s new contracts are included in the 2013 10-K. But the huge revenue jumps in the first two quarters of this year show that those new orders are starting to hit the books.
The high score reflects the triple-digit revenue growth and huge potential client list. Which brings me to scalability…
C.H.A.O.S. Meter: 15/20
As the new kid on the block, AudioEye has a vast (and underserved) market to aim for within government, education, military, and the corporate sector.
In fact, the General Services Administration (GSA) – the agency that manages federal communications, transportation, office space, and other business functions – has an annual expenditure of $15.3 billion.
To capitalize on these lucrative markets, AudioEye has launched a growth initiative with consultancy firm Grant Park Global. The effort will target all of America’s 50 state governments, along with government bodies in Puerto Rico and Latin America.
Outside of government, corporations will be AudioEye’s largest revenue stream, driven by strictly enforced compliancy requirements for making websites accessible to all.
Factoring everything in, AudioEye’s three-year growth prospects look like this…
I believe this is a very realistic roadmap, given that there are no barriers to entry. AudioEye’s technology is the only one that truly covers every government-sanctioned accessibility mandate. And its extensive patent protection means scalability is practically endless.
C.H.A.O.S. Meter: 18/20
OVERALL C.H.A.O.S. RANKING: 85/100
Final Verdict: Yes… AudioEye has some shaky financials and is overly reliant on three companies for the bulk of its revenue. But remember… it’s just starting out.
More importantly, its all-encompassing technology is the first of its kind, and has spawned a new industry. Compare that to the likes of Nuance Communications (NUAN) and Microsoft’s (MSFT) JAWS for Windows, which only provide one or two solutions, not every solution like AudioEye.
Plus, its patents provide iron-clad protection.
As the digital age evolves, AudioEye is pioneering new standards of disability compliance and holding the world accountable, so that disabled web users have the same access and usability that we all do. It’s at the forefront of profiting massively from more stringent regulatory oversight.
Keep in mind, its “chaos” won’t happen overnight… but it’s certainly moving in that direction. Buy now to get in way ahead of this movement, and don’t let its day-to-day swings steer you away from the bigger picture.
Your eyes in the Pipeline,