Creative Realities, CREX, Stock Up 60% On Results – More To Come?

Trade Creative Realities Shares Your Capital Is At Risk
Tim Worstall
Updated: 23 Mar 2022

Key points:

Creative Realities (NASDAQ: CREX) stock jumped 60% premarket off the back of their announcement of annual results for 2021. These showed revenue of $18.4 million and net income of $0.2 million. Which doesn’t sound all that much like something to celebrate but deeper within the numbers there is.

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As background Creative Realities works in “digital marketing technology solutions to retail companies” which is the complicated way of saying showing ads to people in public. So, say someone owned a retail park – one of their customers – and wanted to be able to show ads. Creative would be the people who might supply the solution.

Creative merged with Reflect Systems which builds out their capabilities. One thing to note is that CRI does not simply sell such systems. Rather, the aim is to gain an installation which then produces a continuing revenue stream from the management of that system. So, as with Software as a Service systems – Saas – a regular stream of income from having won the customer.

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Within those details of the numbers though is something which has sparked market interest. That CRI has moved to profit off the back of increased revenue, well, that’s both desired and also slightly expected. There are fixed costs to having created and being able to run the system. But the marginal costs of servicing a new customer are much lower than the average costs of producing the whole system. Gross margins on new business are thus very much higher and so finance those fixed costs as the business grows.

This makes the growth rate at CRI a major determinant of the perceived value. At which point, well, the growth rate was, per the announcement, 5.6% over the year. And we’d not normally think of a 5.6% growth rate in revenue as being a driver of a 60% increase in the CREX stock price. Yet that is what has happened, why?

The answer being that during lockdown CRI looked to other activities. Seems reasonable really, outdoor retail advertising isn’t going to work all that well during lockdown. Now that has largely receded, it’s the growth rate in that core activity which matters. There, in that core digital signage business, revenues grew 32% and 20% for the 3 month (ie, Q4) and full year periods reporting. Which is a much more attractive story being told about the CREX ability to grow into that overhead cost base.

It also helps that they report the continuing integration of Reflect and also strong demand here into 2022 for that core signage business. One other thing that significantly helps here is that ad rates – all ad rates – slumped during lockdown and the general market report is that they’re recovering now.

The immediate future for Creative Realities’ stock price probably depends upon whether this is just a single reaction to the latest results or the start of a substantial revaluation of the company as a whole.

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