Mobile Commerce Firm Signals Expansion Plan

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Mandalay Digital Group Inc., a mobile communications company led by Boost Mobile founder Peter Adderton and backed by Hollywood mogul Peter Guber, has had a busy April as it actively positions itself for a jump to the big time.

The L.A. company this month gained access to the Asia-Pacific market with its purchase of Australian mobile technology company Mia; had a $1 million capital infusion from Guber and Robert Ellin, another director; and last week engineered a reverse stock split, boosting its Over the Counter share price.

The activity caught the attention of investors, who drove its share price up 6 percent to $4.50 for the week ended April 17, making it one of the biggest gainers on the LABJ stock index. (See page 62.)

Mandalay Digital, which makes software that allows mobile phone operators and digital publishers to bypass traditional app stores to sell content directly through mobile devices, is trying to get listed on the Nasdaq stock exchange so it can attract more investors, entice customers and acquire other businesses.

“We’re marching towards getting ourselves on the Nasdaq and we need to make sure we have the right equity value and the stock price to do that,” said Adderton, Mandalay’s chief executive.

To that end, the company completed a one-for-five reverse split April 15. The same day, Guber, chairman and chief executive of Mandalay Entertainment Group and part owner of the Los Angeles Dodgers, and Ellin, a managing director at hedge fund Trinad Capital, each made an equity investment of $500,000. The company did not say how many shares they received for it.

According to filings with the Securities and Exchange Commission made last year, Guber, Mandalay Digital’s chairman, controls about 16 percent of the company’s stock, while Ellin, a director, controls more than 26 percent. Adderton held 8 percent of the company’s common stock at the time of the filing.

Listing boost

Mandalay Digital, which has 25 employees in Los Angeles and 120 worldwide, is trying to stake out a space to take advantage of an expanding market for mobile apps, games and music.

Though games and apps are used on mobile devices, they are not sold by the cellular carriers, who would like expand their revenue streams by tapping into those sales. Mandalay Digital’s software would allow mobile carriers to sell apps to their customers, taking a slice of the market now dominated by Google Inc.’s Google Play and Apple Inc.’s iTunes.

Other Mandalay products analyze consumer behavior and help them search for apps.

“We’re highly confident that this is a real need, not a want, for the carriers,” Ellin told the Business Journal.

Joel Achramowicz, managing director at Merriman Capital in San Francisco who covers Mandalay, said listing on the Nasdaq will give the company a higher profile, which it needs to succeed.

“That’s important, especially for small companies,” Achramowicz said. “Companies and investors will be more disposed to look at the stock.”

Achramowicz, who has a “buy” rating on the stock, estimated revenue for Mandalay Digital’s 2014 fiscal year would reach $20 million. That would mark a huge increase from the $4.3 million in revenue it reported for the first three quarters of fiscal 2013. Mandalay Digital had an $11 million net loss in that period.

He agreed that the partnering with carriers on building customizable user interfaces is a major opportunity.

Mandalay Digital has remained relatively obscure in the United States, largely because it has yet to secure a major customer here. Achramowicz said that if executives land a carrier such as Verizon Communications Inc., the company would get more notice.

“It’s not very visible here because they haven’t had major marketing push domestically,” he said. “That would put them on the map if a major American operator talked about Mandalay.”

Major players such as Facebook Inc. are trying to figure out how to generate more sales through mobile devices. The company recently launched Facebook Home, an app that makes it easier for Facebook users to interact through the social network through their smartphones.

“Everything is morphing into the mobile industry, and if you’re not a player there, you’re really marginal,” Achramowicz said.

Mandalay Digital has spent the last year reaching deals with companies including Telefonica Digital in London, Sun Cellular in the Philippines and Cellcom Israel Ltd. in Israel.

It also acquired the music label assets of Skyrockit, a San Francisco music startup backed by Intel Capital, the investment arm of the Santa Clara chip maker.

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