NeoMedia Bets $60 Million on Mobile-Marketing 'Explosion'

Company Snapping up Ad-Technology Providers Despite 10 Years in the Red

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SAN FRANCISCO (AdAge.com) -- In a marketing space where irrational exuberance evokes deja vu, NeoMedia Technologies seems particularly, well, exuberant.
NeoMedia spent $10 million for Mobot, a provider of visual-search technology that allows a mobile phone's camera to read a newspaper or magazine ad.
NeoMedia spent $10 million for Mobot, a provider of visual-search technology that allows a mobile phone's camera to read a newspaper or magazine ad.

The Fort Myers, Fla., company has been snatching up hot mobile-advertising companies in Europe and the U.S. with client rosters that read like a who's who of marketers: McDonald's, Coca-Cola, Nokia, Sony, Adidas.

In February alone, using cash and shares, NeoMedia purchased Mobot for $10 million; 12snap for $22 million; Gavitec for $7.2 million; and Sponge for $17.4 million (and an extra $4.4 million if two-year earnings targets are met). It also signed a letter of intent to acquire HipCricket for $4.5 million.

$60 million bill
That's some $60 million from a company that posted only $2.2 million in sales last year and lost $9.1 million. NeoMedia has lost money every year since its initial public offering in 1996, according to Securities and Exchange Commission documents. Its stock stands at about 20 cents a share, compared with its original $6. NeoMedia's first-quarter revenue, however, nearly tripled to $2.1 million, primarily as a result of those acquisitions.

But according to NeoMedia's latest annual report, its accounting firm raised "substantial doubt about its ability to continue as a going concern." In an unusual twist, NeoMedia's proxy statement shows that President-CEO Charles Jensen is on the compensation committee that approves his salary. Additionally, the board's audit committee does not have a financial expert "due to financial constraints," the company said.

None of that has slowed down NeoMedia, which last week asked shareholders at its annual meeting last week to vote on management proposals to increase the number of authorized common shares fivefold, from 1 billion to 5 billion, which NeoMedia said could be used for, among other purposes, future acquisitions. The measure was passed.

On top of its new wireless businesses, NeoMedia owns patented software called PaperClick, which allows web-enabled cellphones to read barcodes on products, magazines and outdoor boards and link immediately to the internet. The company said last week it would rename it "Qode."

Auto-repair system
NeoMedia has two other businesses in addition to its mobile-marketing unit. It bought telecom-services venture BSD Software in March, and the other business, NeoMedia Micro Paint Repair, is a system for repairing small dents on cars. Selling the system to auto-repair and other after-market auto stores generates much of the cash needed to make NeoMedia a mobile-marketing leader, Mr. Jensen said.

Martin Copus, NeoMedia's chief operating officer, head of its mobile business and a veteran of Leo Burnett, acknowledged the company isn't making money yet. "The company believes there is going to be an explosion in the marketplace, and we want to be at the forefront of that explosion when it happens," he said, adding that he is in discussions with agencies and the major advertising holding companies to provide mobile-marketing solutions. "Right now we are investing in the space. Not all [of NeoMedia's] companies are making money, and not all are losing money."

What impact will NeoMedia's purchases have on mobile marketing? "It's too early to tell what's going to work," said Countney Acuff, associate director at Publicis Groupe's digital-ventures unit, Denuo.

'A very odd combination'
Shar Van Boskirk, senior analyst at Forrester Research, who said she met with NeoMedia earlier this spring, called the company "a very odd combination" that lacks a plan for a cohesive mobile offering, "a product suite where [a brand such as Pepsi] can plug in," she said. "A lot of investors are trying to anticipate the next big wave," she said, but NeoMedia "is not like the mover and shaker you'd expect in the interactive and mobile space."

Third Screen Media's chief operating officer, Jeff Janer, said it's too early to see who will wind up a mobile-marketing magnate, or even make a lot of money in the business. "It's not clear who is going to be a player," he said, but "there will be some strange bedfellows and players getting into the market."

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Contributing: Bradley Johnson

What NeoMedia has bought

  • 12snap: Munich, Germany-based provider of mobile-marketing creative and development and mobile applications. Sale price: $22 million
  • Gavitec: Wurselen, Germany-based company that provides code readers for mobile marketing, ticketing and couponing. Sale price: $7.2 million
  • HipCricket: Essex, Conn.-based licensor of software allowing broadcasters to use text messaging and other mobile services to interact with listeners. Sale price: Letter of intent signed to purchase company for $4.5 million
  • Sponge: London-based developer of mobile entertainment and other content applications. Sale price: $17.4 million, with an additional $4.4 million to come if two-year earnings targets are met.
  • Mobot: Lexington, Mass.-based provider of visual-search technology that allows a mobile phone's camera to read, for example, a newspaper or magazine ad. Sale price: $10 million
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