KC Underweight Deal: A Stagnant Marketing Agency

Key Stats:

Summary

Today we are weighing in on the merits of Social5’s equity crowdfunding round taking place over at Mr. Crowd.

Social5 is a digital media marketing agency and has been in operation since 2012. Its business is simple: its team manages the social media marketing campaigns on behalf of its clients, which are primarily small businesses.

One thing to note: Social5 prides itself in the use of artificial intelligence to create unique and tailored campaigns for its clients. It manages thousands of social media profiles simultaneously while keeping them unique and customized through the use of extensive research and intelligent systems.

While that may help the company stand out, we have one significant concern about the company. It has been in operation for more than six years and has still not been able to create its own niche beyond its enthusiastic use of AI.

Simply put: there are many marketing agencies out there.

Also, it is not an early-stage company in the strictest sense. Social5 has been around since 2012 and has struggled to grow the top and bottom lines (more on that later).

It is, therefore, advisable for investors to conduct appropriate due diligence before investing in the company. Here’s what we uncovered to get you started:

Social5, LLC: Raising on Mr. Crowd

Weak Financials

Social5 reported revenues of $2.41 million in 2017 which was a 4% decrease from 2016. Typically, in the crowdfunding world, a startup may not be profitable but its top line is typically growing, not declining.

The lack of growth can be explained by the fact that Social5 operates in a highly competitive environment. Continued contract-wins are never assured.

Overall, despite being in business since 2012, Social5 has not been able to become profitable either. The company reported a net loss of $0.13 million for the year that ended on December 31, 2017. It has not had positive growth and there is not much future potential to grow significantly.

Inflated Valuation

For a company with decreasing revenues and net losses, a valuation of $8 million does not seem to be justified.

Valuation has been done by taking the revenue multiple as 3, which is okay for a tech startup, but not necessarily for a marketing agency with stagnate revenues.

Neither an early-stage company nor unique

There is no apparent reason for Social5 to enter the crowdfunding arena. It is not an early-stage company and does not have a unique idea or concept other than the enthusiastic use of AI system to generate advertising campaigns (a decision we suspect many other organizations utilize as well).

Social5, LLC offers online and mobile strategies and tools to small businesses for their promotions, advertising, and marketing. Granted, there is a vast market opportunity, with over 28 million small businesses in the United States. However, there are thousands of competitors in the same space (Google “Social Media Marketing Agency” to get an idea of what we mean).

Social5 is a small Utah-based advertising agency, run by talented and experienced executives. That said, it is not a high growth venture that seems to have a viable path to having even a 1 or 2X exit for investors.

Rating

From our evaluation of Social5, we believe that the company lacks the potential to be able to bring meaningful returns to investors. We are assigning Social5, LLC an Underweight Deal Rating. While we think they will eventually have the ability to return investments to investors, we don’t think it will be with any sort of return.

To summarize, the company has been in the market since 2012. It has still not been able to prove its potential. Social5 has not grown as expected, in terms of revenues, profitability or other financial parameters and it does not offer anything that is truly unique to its customers in a highly saturated market.

The valuation of Social5 also seems to be inflated and unjustifiable. We advise investors to exercise caution and be aware of the risks involved with investing in this company.

If you have any questions regarding the underweight rating of Social5, you can reach us at hello@kingscrowd.com.