Canada’s DataWind (TSX:DW) is solving issues of affordability and infrastructure and enabling mobile internet adoption in emerging markets, says Industrial Alliance Securities analyst Steve Li.
In a research report to clients yesterday, Li initiated coverage of DataWind with a “Speculative Buy” rating and $7.00 one year target price, implying a return of 274% at the time of publication.
Li thinks the developing regions DataWind is targeting, beginning with India, have a long runway of business. He notes that these markets account for more than 70% of the world’s population, yet only about 20% have access to a data plan. He says DataWind’s plan to leverage the existing 2G network and provide cheap devices such as tablets and entry level smartphones with basic connectivity is sound, and that the company could potentially increase its revenue base by collecting ad revenue, licensing and transaction fees, and content revenue, in addition to internet connectivity.
“With the announcement of a new telecom partnership (Reliance), the expansion of its distribution channel through TV Home Shopping Networks and retail stores, the release of new mobile devices, the monetization of its internet subscribers through contextual or behavioral advertisement, and more importantly the increasing penetration for its internet service, DataWind has plenty of room to grow,” said Li.
Li says regional expansion opportunities for DataWind would likely come from places such as Africa, Latin America and SouthEast Asia, though he cautions that even the initial plunge into the Indian market does not come without risk. The analyst says part of the company’s “elevated risk profile” comes from the fact that it operates in a crowded space with well funded competitors, and target regions with “political and social challenges”.