DataWind (TSX:DW) has a real opportunity in enabling internet access to emerging markets, says Haywood analyst Massimo Voci.
In a research report to clients this morning, Voci initiated coverage of DataWind with a “Buy” rating and $7.00 one-year target, implying a return of 75% at the time of publication.
Best known for its cheap tablets, Voci says the real opportunity for DataWind is in using its compression technology to provide internet access to the millions of people who do not currently have it, beginning in the Indian market, where there are an estimated one-billion people without internet access. The company says its goal is in “bridging the digital divide for the digitally disenfranchised”.
Voci says he thinks DataWind’s business model, if successful in India, would be repeatable in markets such as China, Indonesia, Nigeria and Brazil, which collectively have millions of people without internet access.
Voci explains that DataWind’s Internet Delivery Platform (IDP) offloads processing from the device to a cloud server, then compresses the data before delivering back to the device. He points out that this opens the door to internet access on existing 2G networks. The company’s browser does not reproduce web audio or video, but provides a basic connectivity that is currently lacking. The company says its acceleration technology, which is protected by at least 18 patents, reduces bandwidth consumption by 20 times on average for basic internet browsing.
DataWind’s hardware and software solutions come together when it pairs its low cost tablets and smartphones to offer a bundled internet access. A recent deal with Bharat Sanchar Nigam, the provider with the largest geographic reach in Southern India, offers a year of unlimited internet browsing with the purchase of one of the company’s UbiSlate 7Cz or UbiSlate 3G7 tablets. Voci notes that the gross margins on data resales is about 70%, compared to just 20% for devices.
Voci thinks DataWind’s topline will grow by 111% in fiscal 2015 and by another 33% the following year. He expects gross profit will jump by 181% and 50%, respectively, in those same years. He thinks the company will be EBITDA negative until fiscal 2017, when he expects it will generate EBIT of $1.584-million on revenue of just over $100-million. He expects DataWind’s EBIT will grow from 2% that year to the high teens in 2024.