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MGM Wireless

MGM Wireless grows total revenue 161% to $7.1 million and smartwatch sales 933% as market expansion continues

The company believes its communication technology and GPS location platform for SPACETALK has further applications beyond the children’s market.

MGM Wireless - MGM Wireless grows total revenue 161% to $7.1 million and smartwatch sales 933% as market expansion continues
MGM had $1.6 million cash on hand as of June 31, 2019.

MGM Wireless Limited (ASX:MWR) has delivered record sales growth for the 2019 financial year, leveraging favourable smartwatch industry trends.

The company grew its total revenue by 161% over the financial year and boasts a 1,023% increase in unit sales of its wearable children’s smartwatch device SPACETALK.

R&D funded through cash flow

MGM Wireless chief executive officer Mark Fortunatow said the record growth was an outstanding result, with sales of the SPACETALK device increasing from 1,785 units in FY18 to 18,270 in FY19.

Smartwatch sales increased 933% from $0.5 million the previous financial year to $4.7 million in FY19, while MGM’s school products revenue in Australia was stable at $2.2 million.

The company funded research and development through cash flow, with inventory and marketing supported through a $2 million convertible note drawn to $1.25 million at June 30, 2019, and to $1.75 million August 21.

Cost of sales increased from $300,000 to $1.9 million and an EBITDA of $0.25 million for the year is anticipated, prior to non-cash options and share issue expenses of $3.4 million.

"Benefiting from competitive advantages"

Fortunatow continued: “Total revenue grew 161% from $2.7 million to $7.1 million, as the rollout of SPACETALK gathered significant momentum with the signing of additional major international retail distribution agreements.

“We are operating in a new, fast growth market and benefiting from competitive advantages.”

UK market exposure

Sales were boosted in the UK, which has an addressable market three times larger than Australia’s, through a watershed agreement with Europe’s leading media, entertainment and telecommunications company Sky, part of the Comcast Group.

Sky began selling SPACETALK through Sky Mobile on a £10 per month plan in August this year.

SPACETALK will be marketed to Sky’s 23 million subscriber base as well as specifically targeting its 10 million subscribers with children aged between five and 12.

FY20 sales target four times that in FY19

The distribution agreement with Sky is particularly significant due to Sky’s brand awareness, commitment to market SPACETALK across its entire subscriber base and the attractiveness of the £10 per month offer.

The company is targeting sales of about 90,000 units in FY20, four times the number sold in FY19.

Initial orders have been placed with suppliers to meet this demand and, given the pipeline of other networks and distributors already in discussion, MGM anticipates growth will continue beyond FY20.

"Emergence of new mobile phone product category"

Fortunatow added: “Our product is the world leader in the children’s wearables segment because of its exceptional reliability, high quality, ease-of-use, while meeting the highest standards of data security and privacy standards.

“SPACETALK is becoming the ‘hot, must have’ mobile phone product among children aged between five and 12.

“Just as in the 1990s with the mobile phone, and the 2000s with the smartphone, we are now witnessing the emergence of a new mobile phone product category – the children’s wearable mobile phone, in which SPACETALK is the market leader.”

Enormous growth opportunities

Increased maturity of MGM’s business has enabled extended payment terms with supplier, freeing up cash flow, and it continues to receive interest from telecommunication companies and retailers in the UK and mainland Europe.

Fortunatow noted conditions were ripe to capitalise on the enormous growth opportunities for SPACETALK.

Global smartwatch sales are trending strongly, representing the largest proportion of the wearable device market.

Global research and advisory company Gartner Inc expects smartwatch sales to grow from $9.3 billion in 2017 to $17.4 billion through 2021, with children’s smartwatches a major category.

Mass-scale advertising and marketing planned

Fortunatow said: “In the UK we have already received extensive positive media coverage and feedback, and that’s before the commencement of planned mass-scale advertising and marketing.

“The SPACETALK watch is the most secure in the children’s wearables market, is GDPR-compliant and meets all UK, European and Australian standards for data privacy and security.”

The company chief also noted it had secured a US trademark in line with its expansion plans with telecom and retail partners.

Quick facts: MGM Wireless

Price: $3.77

Market: ASX
Market Cap: $47.18 m
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