Paltalk, Inc. (PALT), together with its subsidiaries, operates as a communications software provider developing multimedia social applications and secure communication solutions worldwide, notes Faris Sleem, a specialist in low-priced stocks and editor of The Bowser Report.
It also offers consumer applications, which include Paltalk, Camfrog and Tinychat for live video chat; and Vumber, a telecommunications application that enables users to have multiple phone numbers in any area code.
PALT has had this core technology since 1998 and has 18 patents licensed to Microsoft, Sony and more. The company has four main revenue streams and has a recurring revenue subscription business model.
Subscriptions are based on a "freemium" model that expands access and unlocks status if users pay. Both virtual gifts and technology service revenue seek to increase engagement and reward users. Subscriptions and virtual gifts account for the vast majority of the company’s revenue.
Paltalk revenue has declined slightly in recent years while net income has increased drastically. Despite PALT’s history of reporting significant losses, a new upward trend has been established, and its trailing twelve-month (ttm) net income totals $1.8 million.
Although revenue growth has eased, the focus on the bottom line directly benefits investors due to the company’s low share count. There are only 8.3 million shares outstanding, which could result in significant value creation with any further improvement of its bottom line.
Despite growth slowing in recent years, financial results for the nine months, ended September 30, 2021, showed revenue growth across all segments. Advertising revenue and technology service revenue grew 52% and 101%, respectively.
PALT integrated digital tokens as a user reward system in its Paltalk and Camfrog apps in August 2020. The Props token, a cryptographic token that exists on the Ethereum blockchain, rewards end-users who create, consume and engage with content and services.
Impairment losses and realized gains/losses from the sale of digital tokens can potentially affect its net income. During the nine months ended September 30, 2021, the company sold approximately 32.4 million Props tokens for proceeds of $806,618.
In comparison to the software and programming industry, PALT is severely undervalued. While its price/book (P/B) ratio of 1.4 suggests an overvaluation, it is 92% below the industry average of 17. Price/sales (P/S) and price/earnings (P/E) ratios are also drastically lower, even with the industry taking a 25% hit in market value during the most recent market correction.
There have been a large number of acquisitions in the industry, and PALT's valuation makes the company a potential buyout candidate for large software companies. Even though its book value is $1.75 per share, we believe the ideal entry point to be under $2.20 per share.
The Paltalk team is small and efficient. The company has 22 full-time employees and is led by CEO Jason Katz and CFO Kara Jenny. This small team has been able to greatly improve the company’s bottom line results, explore acquisitions and maintain a healthy balance sheet.
Insiders currently own 49% of the shares outstanding and have purchased shares in the open market six times within the last year. CEO Jason Katz accounts for all but one of these purchases, bringing his total shares owned to 787,177.
All of Katz’s transactions have been direct buys and he paid a median price of $3.55/share in 2021. Insider accumulation is reassuring for long-term investors. We believe this is the right time for investors to jump in for the long haul.
