Marin Software (NASDAQ:MRIN) stock is part of a rare breed: tech companies that haven’t benefited from the work-from-home trend. Up until last month, MRIN stock was flat on the year and barely had a pulse despite the enthusiasm for most software companies.
Marin’s 2020 is part of a larger trend. In fact, Marin is a monumental fiasco since going public back in 2014. Shares dropped from their original initial public offering price (IPO) of more than $100 per share to just $2 now. That’s a near-total destruction of shareholder’s capital. The decline is fully-warranted based on earnings as well; the company’s revenue dropped by more than half since 2015 and it’s losing tons of money.
A Failed Business Strategy
Accord Partners, an activist fund, took aim at Marin Software earlier this year. They published a broadside against the company’s management, pointing out what they view as numerous deficiencies of the company.
At least as Accord describes it, Marin built itself using an errant competitive strategy. Marin aims to be a cross-platform hub for search, social, and e-commerce ads. Unfortunately, it faces the gigantic titans Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) in that space. And, of course, those two rivals are armed with far more information about potential customers than Marin is thanks to their vast troves of user data.
By contrast, the most attractive advertising space for independent players is display ads. There, you have success stories such as The Trade Desk (NASDAQ:TTD) despite the presence of the big tech giants. Painfully for MRIN stock holders, The Trade Desk was founded well after Marin but already surpassed it a hundred times over in terms of valuation.
Instead of making a big move into display ads, as The Trade Desk did, however, Marin doubled-down on its original all-in-one strategy. The company spent $100 million on designing its new MarinOne platform to improve its efforts in its existing ad channels. However, the total revenue pie there continues to erode so even Marin’s technological advances weren’t enough to move the needle.
In a Downward Spiral
Over the past five years, Marin Software saw half its revenue disappear. This, combined with heavy spending on research and development, has led to massive losses and cash bleed. And now, incredibly enough, things are getting even worse. With the novel coronavirus, Marin’s revenue declines turned into a full-on collapse.
For the third quarter, Marin brought in just $6.8 million in revenue. That was down more than 40% from the same period last year. Meanwhile, the company has just $8 million in cash on hand. That’s down significantly from the $11 million it held at the end of 2019. At the same time, the company has $23 million in liabilities including $18 million that are current obligations. Thus, Marin’s financial situation is tight, particularly given that the operating business is continuing to run large losses.
Light on the Horizon?
MRIN stock popped recently. Shares jumped as much as 200% in recent days. As our Louis Navellier noted, there was no direct obvious piece of news to explain the jump. However, with a thinly-traded stock like Marin, it’s possible that one block transaction set off a cascade of buying interest.
In any case, more generally, there may be several reasons for the optimism. For one thing, the company is cutting costs; it recently laid off 60 people. While that’s never fun, it should help slow the company’s losses. Marin also sold off a business division, raising almost $5 million in cash. None of this will fix Marin overnight, but perhaps traders are trying to front-run a potential turn-around.
MRIN Stock Verdict
While things might improve in the future, it makes little sense to invest in Marin Software at this point. There is simply nothing in the story to suggest that the situation is salvageable.
The company is losing nearly its entire remaining market capitalization every year merely in operating the business. Furthermore, the business is steadily shrinking; there’s no grow your way to breakeven play here.
Marin’s chief executive officer (CEO) Chris Lien acknowledged the grave difficulties the company is facing. On the company’s most recent conference call, he said that:
“As I’ve discussed on prior calls, our efforts to return Marin to growth are taking longer than any of us would have preferred and our revenues continue to be under pressure. At the same time, we continue to believe that our strategy is sound and that our initiatives will show results in the coming quarters. Additionally, there are some encouraging signs present even if not yet sufficient to return Marin to growth.”
Straight from the CEO’s mouth, we see that Marin’s return to growth is taking longer than expected. Additionally, even the positive signs the company sees now are “not yet sufficient” to get the company back on track. With that in mind, MRIN stock is a risky play at best.
On the date of publication, Ian Bezek held a long position in FB stock.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.