Remark Holdings (NASDAQ:MARK), an artificial intelligence (AI) and digital media specialist has witnessed a 162% jump in MARK stock year-to-date.
The company is in the news for its touch-free equipment, which could help in the detection of coronavirus and limit infection rates. The equipment uses thermal cameras to scan facial temperatures without the need for close contact effectively. Additionally, the company’s stake in the potential IPO of an innovative digital health platform in Sharecare has investors buzzing about MARK stock.
However, the Remark’s growth is not without its fair share of risks. A lot of the risk pertains to the regulatory environment, especially in countries such as China, which severely impacted revenues.
The U.S.-China trade war is another area of concern that is affecting the mobility of capital between the two countries. Additionally, its profitability is a significant concern for the company with its operating margins in the negative for the past decade.
However, strong demand for AI, effective cost control, and immense future potential make MARK stock a buy. Let’s look into some of these aspects in more detail.
A Closer Look at MARK Stock
There’s a lot to cheer about of late if you own shares in Remark. It recently introduced touch-free equipment that utilizes thermal imaging cameras to detect coronavirus and in limiting infection rates. Through integration with AI capabilities, it can perform automated scans almost ten times faster than manual systems.
CEO Kai-Shing Tao is delighted by the progress of Remark ’s solutions as part of the reopening of the US economy. This is encouraging, but regulatory risks of using such devices on a large scale need to be considered as well.
Furthermore, the company’s stake in Sharecare is also being touted as another feather in its cap. Sharecare is a digital health company that enables its user to manage their personalized health profiles, which can easily be connected to healthcare professionals and evidence-based programs.
The company has a 4.5% stake in Sharecare in a “hot” IPO with television personalities such as Dr. Oz and Oprah Winfrey as investors.
Remark recently reported its financial results for the year ended December 31, 2019. Overall the results were lackluster, primarily because of the crackdown on Fintech by the Chinese authorities.
Revenue for fiscal 2019 was $5.0 million, which is down roughly 51% compared to 2018. This naturally increased the net loss from continuing operations by $3.4 million for the year.
However, on a positive note, the company was able to reduce its total costs and expenses from $54.6 million to $27.8 million in 2019. The reduction is mainly attributable to a $12.4 million decrease in stock-based compensation expense and reduced cost of sales attributable to the Fintech sector.
Its liquidity position is far from ideal at this point. The cash balance has declined further from an already meager $1.4 million to $0.3 million in 2019. Naturally, its current ratio has declined by 58% in the year.
Remark paid off MGG approximately $12.7 million, which is weighed in on its financial flexibility. Going forward, the company must pull up its socks to improve the pristineness of its balance sheet.
Revenue Repositioning and Future
The intense scrutiny on Fintech by the Chinese authorities and its crippling impact on Remark’s Fintech revenues has shifted the focus of its efforts on its AI capabilities. The company has won several contracts, a lot of which are in China, which involve the development of Smart retail stores, pharmacy terminal systems, AI biosafety system for African swine flu, and others.
One of the core benefits of AI is that it’s a software-based product carrying higher gross margins due to the replicability of software. The company is witnessing strong demand for its AI products, some of which are being seen as critical components.
For example, its AI-enabled thermal cameras are being used in the United Medical Center for screening patients and in casino businesses such as those operated by Wynn Resorts (NASDAQ:WYNN).
Marketing and selling costs are also limited to AI which is only going to expand margins. This is already apparent in the company’s gross margin for 2019, which is at 30% improving from -30% in the previous year. Going forward, its AI solutions will be at the heart of its revenue model.
Final Word on MARK stock
Remark is leveraging its AI competencies to develop solutions that can potentially prove to be game-changers for the company. The company is positioning its efforts towards AI-related technologies after seeing the erosion of its Fintech revenues from China. However, consolidated efforts in that area could help get things back up and running on the Fintech side as well.
At the same time, the tensions between the U.S. and China could complicate the regulatory environment and impact the company’s products. In protecting itself from the regulatory action from Chinese authorities, the company is performing General Data Protection Regulation (GDPR) audits on its AI solutions.
As of this writing, Muslim Farooque did not hold a position in any of the aforementioned securities.