Net Element Inc (NASDAQ:NETE) Sells Off After Earnings

Source: Net Element Inc

It's been a rough few days for shareholders of Net Element Inc (NASDAQ:NETE) since earnings were released on March 31. On the surface, the numbers were quite good. However, we think some momentum players got in before and were expecting bigger numbers. These traders booked their profits and an increase in short selling helped to drive shares of NETE lower.

Net Element operates a payments-as-a-service transactional and value-added services platform for small to medium enterprise ("SME") in the US and selected emerging markets. In the US it aims to grow transactional revenue by innovating SME productivity services such as its cloud based, restaurant point-of-sale solution Aptito. Internationally, Net Element's strategy is to leverage its omni-channel platform to deliver flexible offerings to emerging markets with diverse banking, regulatory and demographic conditions such as UAE, Kazakhstan, Kyrgyzstan and Azerbaijan where initiatives have been recently launched.

For full-year 2015, net revenue increased 89.5% to $40,235,362 million as compared to $21,236,704 in the prior year. NETE saw growth in all three business segments. The North America Transaction Solution segment reported revenues increased 41% to $27.4 million. The mobile solutions segment saw a 385% jump to $9 million. As a result of the PayOnline acquisition, the online solutions business reported $3.8 million in revenues.

Total US Dollar volume transactions processed globally in 2015 exceeded $1.75 billion with an annual run rate of over $2 billion as of December 2015, an increase of 9.4% compared to $1.6 billion in 2014. Total transactions processed for 2015 exceeded 160.7 million compared to 51.9 million in 2014, an increase of 210%. Net Element acquired PayOnline, which led to new sources of revenue for the company by signing multi-year contracts with premium on-line dating networks such as Dating.com, AnastasiaDate, AmoLatina and AsianDate. DigitalProvider (formerly TOT Money), exceeded 3 million recurring mobile subscribers and experienced 171% subscriber growth from January 2015 to October 2015.

We like the PayOnline purchase. Quarter over quarter growth in the third quarter was over 50% and that should add some great high margin revenue for 2016. With a 36% gross margin in a recurring revenue business, this will be a prime growth driver for the company. As a result, NETE could see $30 million in revenues from PayOnline this year and add roughly $10 million to the bottom line.

Another growth area for NETE is its proprietary, cloud-based Aptito Point of Sale solution for retail stores. Aptito Retail POS cloud-based solution is available on Apple iOS platform and allows retailers to focus on their business and improve the in-store experience. It allows them to anticipate customer needs by tracking purchasing habits, inventory management and reduce customer wait times with quicker transactions. Retailers are also able to customize Aptito Retail POS based on their environment.

Peripherals for Aptito Retail POS include a fully integrated cash drawer, thermal receipt printer, barcode scanner, barcode printer and EMV-compliant point of sale acceptance terminal. This allows retailers the ability to customize their POS solution based on their unique needs. Aptito Retail POS software is available for free to any retailer who chooses to process payments through Net Element’s Unified Payments. The complete system is available for purchase now and with hardware bundles at a starting price of $39 per month.

Currently trading with just a $25 million market cap, NETE has until June 16 to bring its share price back up over $1 per share to comply with its NASDAQ listing. We expect the company to possibly do a reverse split and this is another overhang on the stock. We've see what's happened to Great Basin Scientific Inc (NASDAQ:GBSN) in doing reverse splits and it's not pretty. We're hoping NETE doesn't go the way of GBSN. The good news for shareholders is that board member Rakishev Kenges is on the same side as stockholders and has been adding to his holdings. He purchased 7.1m shares at $.14 and 4.6m shares at $.20 per share. We will be updating Insider Financial as soon as we know more. For continuing coverage on NETE, sign up for our free newsletter today and get our next hot stock pick!

Disclosure: We have no position in NETE and have not been compensated for this article.