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powerbattles Member Level  Wednesday, 03/15/17 12:44:08 AM
Re: goldismoney1 post# 20195
Post # of 47131 

Where Does InterCloud Systems Inc (OTCMKTS:ICLD) Go From Here?
By Chris Sandburg / in Momentum & Growth, Momentum Stocks, Stocks, Tech / on Tuesday, 14 Mar 2017 11:14 PM / 0 Comment / 102 views

On March 2, we published this piece, highlighting InterCloud Systems Inc (OTCMKTS:ICLD) as a potential near term runner. The stock had traded pretty flat throughout the majority of the first part of 2017 but we saw a spike in volume early March and the stock drew our attention. We asked the question – is there any run room available near term? – and gave the answer – yes, there is. At market close on Monday, the stock went for $0.065 a piece. That’s a close to 250% run on the price at which we pinned the stock as one to keep an eye on.

Now, we’ve got to ask the question again – can the stock run further, or is the current price a near term peak?

Let’s take a look.

Last time, our thesis was rooted in management’s focus on capital structure. This time around, it’s all about earnings. InterCloud just put out its full year 2016 results, and alongside the numbers, has given an operational update that solidifies some of the points we noted last time.

Full year 2016 revenue came in at $78 million, up from the $74 million recorded in 2015. Gross profit for the period hit $19.8 million, down slightly on the $20.2 million recorded a year earlier. Net loss was $26.5 million in 2016 and $65.8 million in 2015.

A key point for us is rooted in two platforms offered by the company that it refers to as NFV and SDN in the financials. We said it last time, these sorts of companies can be tough to get to the bottom of because what they offer is generally chock full of jargon. This, often, causes misinterpretation, and – sometimes – opportunity, and here’s a great example of such. The two abbreviations stand for Software Defined Networking and Network Functions Virtualization, and it’s basically a method through which a data center can separate the main network functions from the software that’s used to run them. With the trend towards cloud networking, it’s become crucial to have this sort of separation available (so that networks can test various software without affecting entire data centers) and InterCloud is trying to cash in on this trend. And to a degree, it’s succeeding. The company registered zero revenues attributable to its SDN and NFV offering sin 2015, and $5 million revenues for these products in 2016. That’s growth in line with industry trends, and a real credit in our view.

And that’s not the most interesting part. Two companies with platforms of this type recently sold for $100 million each in the sector. These platforms are very similar from a service perspective to that of InterCloud, and the scale of these acquisitions highlights the scale of growth on offer right now in this specific space. For perspective, InterCloud currently commands a market cap of just $4 million.

And then there’s the capital structure shift. In June 2016, the company held senior convertible debt of $26 million. At the latest count, this was down to $5.7 million – an important and not to be understated shift. As we said last time, the presence of this debt has been weighing heavily on InterCloud’s ability to pick up any sort of upside revaluation. As this pressure lifts, we should see the company start to appreciate to a value more reflective of its underlying fundamentals than it is of a reflection of the company’s dilutive risk.

So what’s the answer this time around? Are things going to go up from here?

Well, near term, we think there’s a good chance of a corrective sell off, as the shorter terms operators pull profits off the table. Once markets rebalance, however, and we think this will happen at a floor far higher than that from which the latest run kicked off, InterCloud could see a return to its overarching upside momentum.

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