Avoid Marin Software Until It Is Profitable

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Marin Software (NASDAQ:MRIN), which has an $18 million market capitalization, develops advertising-efficiency software and is burning cash like there is no tomorrow. MRIN stock suddenly shot up 100%, almost conveniently, during the last week of October.

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I say conveniently because that coincided with an equity offering by the company. In the last week of Oct., right after the stock skyrocketed, Marin sold $6 million of its new shares for $3.30 each.

That looks very fishy. Prior to last month, the stock was at $1.26. And the shares began dropping  soon after Morin finished raising capital. Today MRIN stock is down to $2.05.

Why Is Marin Software Unprofitable?

Advertising is a profitable business. It stands to reason that selling software  that assists merchants in their marketing campaigns should also be profitable.

However, on Nov. 5, Marin Software reported that its third quarter sales had tumbled 42% year-over-year  to just $6.8 million. Moreover, it lost $2.8 million, excluding some items, in Q3.

And the company’s loss margin skyrocketed to negative 42% in Q3 from negative 25% during the same period a year earlier.

In addition, Marin does not expect a massive increase in sales or profits in Q4. For the current quarter, it forecasts $6.3 million to $6.8 million of revenue, compared to $6.8 million of sales in Q3.

The biggest problem Marin faces is that its software costs eat up a huge portion of its revenue. For example, in Q3 its research and development expenses were $3.1 million or 45.6% of its sales for the quarter. Most companies’ R&D costs do not amount to more than 5% of their sales.

Moreover, Marin’s cash-flow statement shows that the company reported  $1.44 million of software expenses for the first nine months of the year, on top of operating cash flow losses of $4.49 million during the same period.

In the first nine months of the year, its cash flow loss came in at $5.9 million on sales of $22.7 million. In other words, it is spending about 26% of its sales.

That tells me that Marin Software is still trying to develop its software platforms; it is testing its platforms on its existing clients.

Marin Software’s Capital Problem

Marin began selling MRIN stock publicly before it really should have done so. After consulting and working for a number of technology companies, I have seen this quite common phenomenon before.

After all, companies need capital to survive and build their software platforms. However, at the same time, they have to show their customers that their software is worthwhile and profitable for them.

Often that means that the original customers get to buy start-ups’ software platforms relatively cheaply. As a result, software start-ups need to have many customers before they can be profitable.

What To Do With MRIN Stock

Therefore, I suggest that most investors, before buying Marin’s shares, might want to wait to see if it can become profitable. In other words, in the short run, MRIN stock might be something of a gamble.

Moreover, this stock’s market capitalization is a tiny $18 million. For all intents and purposes, it is an R&D company, even though it is in a consumer business.

As a result, there are no Wall Street analysts covering MRIN stock. That makes sense because I  find it difficult to figure out how to measure the company’s progress.

There are no Key Performance Indicators (KPIs) that can help me measure its growth. One thing the company might do is start announcing the number of customers it had each quarter.

Investors should wait for more information before investing big money in MRIN stock.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.

Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.


Article printed from InvestorPlace Media, https://investorplace.com/2020/11/mrin-stock-is-stuck-in-a-range-until-it-can-show-profits/.

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