With my involvement at Heelo, I have learned a lot about the new advertising world. There has been and still is a huge transformation taking place to digital advertising. You have experience with this from Google and Facebook that along with YouTube see the most web traffic, more than twice the next top 10 web sites combined. They use the shotgun approach, much the same as we see on TV and paper flyer distribution. Google and Facebook will measure click throughs on ads, much like TV measured viewership. They all try to target advertising as best they can, whether it be digital ads pushed to certain demographics or ads geared to viewers of baseball or football ad son TV.
The question on everyone's mind with almost everything is the affect of Covid-19. This will no doubt cause an overall decrease in advertising budgets, as well as a paradigm shift in how dollars are spent. For example, emarketer is predicting an overall -16.7% decline for 2020 in the UK ad market, most of it in Q2. Similar numbers should be expected everywhere. For the first time ever, digital (internet) will account for over half of ad spend. Zenith expects U.S. internet ad spending to jump 12.4% in 2020 to $135 billion, accounting for 53% of ad spending. GroupM forecasts worldwide internet ad spending to increase 11.1% in 2020 to $326 billion, capturing 52% of ad spending. Covid-19 will only increase this trend as people are spending more time at home on the internet and streaming video, along with the fact that digital is less expensive for advertisers. The trend to digital will continue, but the dollar figure in this chart could be lower due to Covid-19.
What is hot and what is not with digital advertising?
You can search and find many reports, but a few things stick out. Programmatic CTV video advertising goes big. This is what you see with video streaming such as Netflix, Amazon Prime and a big new entry Disney and this underpins the new ad-supported streaming entries from NBCUniversal and Viacom. Two of the main things internet users spend time on are video streaming and gaming.
Real-time in-game advertising is one of the most intriguing because of its sheer size. There are now more than 2.5 billion gamers across the world, spending $148.8 billion on games in 2019—a 7.2% growth from 2018.
Capturing Generation Z's attention will be a focus for many years to come. This demographic born between 1996 and 2010 is now the largest in the world, constituting 32% of the global population or 2.47 billion of the roughly 7.7 billion global population, passing Millennials along the way. Gen Z-ers are largely lauded as digital pioneers. For advertisers out there, the possibility to reach such a prized audience—and at scale, at that—should be a no-brainer.
I have come across a small public Canadian company that is positioned perfectly for this trend, and I believe it is undiscovered and undervalued. They have a robust reward based advertising platform that is now focused on the gaming industry. I expect it will be gobbled up by one of the big players like a Facebook or Google. I am speaking about:
Versus Systems Inc. (VS:CSE; VRSSF:OTCQB) Recent Price $0.26
52 week trading range - $0.17 to $0.50
Shares outstanding 140.2 million approx. 41.5 million warrants (97% at $0.30 and higher)
The most popular ad model on the internet does not work well and this graphic from the Versus presentation sums it up well.
Versus Systems has developed a proprietary in-game prizing and promotions engine that allows game publishers and developers to offer in-game prizing across mobile, console, PC games and streaming media. Brands pay to place products in game, and gamers compete for those prizes.
Highlights:
- Multiyear deal with HP Omen, millions of gaming computers;
- Versus, Winfinite is a versatile and easy to adopt platform;
- A US patent has been issued and more filed in the U.S. and international;
- Omen rewards now active with League of Legends, the biggest PC game in history;
- Versus app rewards now in Kast, a video streaming app;
- Versus signs agreement with iClick of China, a Chinese global marketing partner and brand connector that reaches 98% of internet users in China;
- Versus agreement with Animoca Brands, a global developer and publisher of popular games like The Sandbox, F1 Delta and Power Rangers;
- Superior revenue model over clicks, based on transactions.
Management
Keyvan Peymani, Executive Chairman, is a veteran senior executive and thought leader working at the intersection of technology, media, venture capital and investment banking. Prior to Versus, Peymani served as the managing director for the technology, media and telecom sector for Salem Partners, and held the global chief marketing officer role for a multibillion-dollar segment of Amazon Web Services as the head of start-up marketing. He has also been a venture partner and senior adviser to Touchdown Ventures, a venture capital firm pairing with leading corporations to establish and manage their venture capital efforts, and held the chief digital officer role at ICM Partners, one of the world's largest talent and literary agencies, as managing director, digital strategy division, reporting to the executive board. He also served as the vice-president of direct-to-consumer business planning and operations at Warner Bros., where he was a founding executive and led strategy, operations, planning and development for the division. In addition, he general managed three business areas, including mobile apps, and worked on industry-leading forays into OTT, the first fully digital movie apps, the first screening of movies in Facebook and the acquisition of Flixster. Prior, he was the head of content acquisitions for catalogue content and led the wholesales efforts at Netflix; he led alternative business development for Disney's music group; and he was the chief operating officer of Nettwerk Music Group.
Matthew Pierce, Founder and CEO, has over 15 years of experience working in entertainment and technology. He is currently the founder and chief executive officer of OLabs, a joint venture between Manatt and Originate that creates, funds, and develops technology companies. Versus is a portfolio company of OLabs. Prior to founding OLabs, Pierce was vice president of strategy at Originate, working with early-stage technology companies. He has also worked at Warner Bros and the Boston Consulting Group. Pierce is a lecturer at the University of California, Los Angeles (UCLA) Anderson School of Management and in the economics department at UCLA, where he teaches entrepreneurship. Pierce is a graduate of Stanford University and he earned his MBA from UCLA.
Alex Peachey, Chief Technology Officer, leads the architecture efforts for the Elixir-based platform. Leveraging over two decades of experience building data driven software systems, Alex leads a group of highly talented software engineers in developing the Versus Systems Winfinite challenge platform. Alex believes that the Elixir applications running on the Erlang/BEAM virtual machine allow Versus to create a highly robust and scalable system. The opportunity to build systems enabling video game developers to make their games more fun is exciting as Alex spends much of his free time playing a variety of video games with his son. He holds a BS in Computer Science from Western Washington University and an MBA from the University of Washington.
Brian Tingle, director, began his career in the Canadian banking sector, and has been involved in the capital markets for the past 20 years as an advisor, and also as a director, for both private and public companies. Brian is experienced in a range of corporate transactions including acquisitions, mergers, takeovers and financings; his specialty being the effective delivery of the due diligence process.
These are a few highlights of an in-depth management, technical team and advisors. I had a lengthy discussion with Brian Tingle and Keyvan Peymani about the direction of the company and I am confident they are on a path to big success.
Products
Versus Systems has developed Winfinite—a proprietary in-game prizing and promotions engine that allows game publishers and developers to offer in-game prizing across various platforms including mobile, console, PC games and streaming media. Brands pay to place products in game via Winfinite, and gamers compete for those prizes. Versus provides software development kits (SDKs) for third parties to adopt the platform in their apps and games. This graphic should help.
A couple examples should give you an idea. HP's new Omen gaming computers are among favorites with gamers. HP was the #1 PC seller in 2017 and either 1 or 2 in 2018, depending on who you looked at. In 2019 they came in with 23.6% of the market, just behind Lenova at 24.3%. Versus' partnership with HP is huge and will propel considerable growth. Winfinite now powers all HP OMEN gaming computers and will be launching in HP Pavilion in 2020.
At the 2019 CES in Vegas, this is what Alex Cho, president of HP Personal Systems, had to say about gaming: "Gaming is a very serious effort. Let me give you the reason why, and then what we're doing. First, the PC market, in terms of hardware alone, is reaching about $41 billion. More important, esports and gaming is becoming far more mainstream. When you look at how gaming has evolved, it used to be more around males, teenagers, somewhat of a solitary activity. Now it's transforming. It's far more social. The demographics are far more diverse. It's becoming something that you do across multiple devices as well."
Versus hits a home run retaining younger player base in 704 Games, publisher of NASCARS's official games.
Financial
Versus is just getting started. Last financials show almost $700,000 cash, and debt, notes payable of $4.37 million. These notes are payable to directors that are shareholders of the company. I consider this friendly debt. Sales are only in their infancy and came in at $654,324 for the nine month period ending Sept. 30, 2019.
Since then, on Feb. 13, Versus Systems closed a non-brokered private placement through the issuance of 2.4 million units at a price of 25 cents per unit, generating aggregate gross proceeds of $600,000.
Each unit comprises one common share in the capital of the company and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share at a price of 40 cents per share for 12 months following the date of issue.
Conclusion
I believe Versus has a very good advertising platform for the future digital world. It draws a larger audience and retains a larger audience. It has a focus on the largest mobile app sector, gaming and the gaming industry in itself is huge. It also aligns perfectly with Generation Z, the future.
Their agreements and partnerships with industry leaders, such as HP, Animoca Brands, Kast and iClick is a strong start and I expect more to come.
Because the gaming industry is so large and Versus has a superior ad model, their advertising revenues have the potential of what you see at a Google or Facebook. This graphic highlights their model.
It is important to note that the Versus platform can be used beyond gaming. They are working with Kast, a video streaming app. This app allows you to share and watch the video with friends. For example, perhaps if 50 or more are watching, one is eligible on a draw for a delivered pizza? Engagement advertising is only limited to the imagination.
Versus can gain faster momentum in the current Covid-19 world. On March 20, Versus announced a 67% increase in the number of sessions played per player across Versus-enabled mobile and PC games in March as people worldwide play more casual and social multiplayer games during the coronavirus pandemic. Some mobile games have shown an over 300% increase in prizing sessions compared with the same period in February. As Forbes has reported, games are being played at record levels as Covid-19 keeps people inside. This is consistent with reports from the Apple app store in China where game downloads are up 27.5 per cent year over year.
This comment from Executive Chairman Mr. Peymani in a recent news release is a good summary: "I am proud to expand my commitment in building Versus Systems during this unprecedented time. As on-line gaming and streaming surge around the world, new consumer behaviors are being created and will change the landscape for how brands reach their audiences irrevocably. Performance marketing tools will be critical for any advertisers wishing to remain relevant, and Versus Systems market-leading tool set and approach are the right solution presented at the right time. I could not be more excited for our growth and prospects as we continue to add brands and partners around the world."
There is strong support at 18 cents that was tested in the panic sell off. If we smooth out the over reactions to Covid-19 in March, the panic sell off and the pop higher on news that because of Covid-19 their game usage jumped 67% there is a bullish cup and handle pattern. There is also a wedge pattern on the chart. A break above this wedge would be a good signal that the uptrend would continue.
Ron Struthers founded Struthers' Resource Stock Report 23 years ago. The report covers senior and junior companies with ample trading liquidity. He started his Millennium Index of dividend stocks in 2003 - $1,000 invested then was worth over $4,000 end of 2014 and the index returned 26.8% in 2016. He retired from IBM after 30 years in customer service, systems and business analyst, also developing his own charting software. He has expertise in junior start-ups and was a co-founder of Paramount Gold and Silver.
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