Mitek Systems Inc. (NASDAQ:MITK)

CAPS Rating: 2 out of 5

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Player Avatar Jeffrey2012 (20.05) Submitted: 7/20/2011 8:54:31 PM : Underperform Start Price: $9.50 MITK Score: +72.86

The company is riding the wave of mobile euphoria with mobile me. However, looking at the company itself, I fail to understand how anyone could possibly pay $203 million for a company that not only consistently loses money, but has no line of credit. They even say in their filing they will get their financing from share offerings which can only dilute their current holders in an almost worthless company.

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Member Avatar VPHM (< 20) Submitted: 7/24/2011 12:59:57 PM
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Projection - 1.5 Billion Mobile RDC by 2014

Beyond the compelling convenience benefits for Mobile RDC to consumers, the adoption of Mobile RDC represents a significant opportunity to reduce traditional branch deposit transaction volume. The Mercatus study found that consumers likely to adopt mobile RDC, today, are responsible for approximately 30% of branch consumer deposit volume. "With only moderate adoption of Mobile RDC by consumers, banks can expect to see dramatic reductions in the volume of branch deposit transactions. The incredible convenience benefit to consumers is equally matched by the strategic cost structure benefit to banks," Hedges said. Mercatus forecasts that with Mobile RDC, more than 1.5 billion check deposit-making transactions will be eliminated from U.S. bank branches by 2014."

Member Avatar Jeffrey2012 (20.05) Submitted: 7/25/2011 7:27:31 PM
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I understand the technology and the premise behind it. In fact, I believe it since checks are going the way of dinosaurs. However, what I have not been able to see is where this juicy growth forecast translates into the bottom line for MITK. It seems as though it's just going to the moon because of this belief that growth will lift all boats which I firmly disbelief. They had some contract wins with Chase and a few others, but there has been no meaningful growth to the bottom line which is where I'm more concerned. Without hard evidence, I do not see how this company can sustain it's valuation and more importantly to be worth what it is right now.

I take growth forecasts with a grain of salt because it's usually far too rosy. For example, the tablet market is supposed to grow to 40-5 million tablets within the next few years and up to 220 million something like that. I forgot which IDC or Forrester report it was. But what they fail to mention is that Apple dominates the market for most of the current and forseeable future. While growth is gangbuster, the beneficiary is not all the tablet makers hopping on board. I feel this same situation is happening for the Mobile Checking system going on right now. But I would appreciate any other insightful information gleamed from the industry as I am always looking to update my thesis on my investments.

Member Avatar MinookaMan (< 20) Submitted: 8/4/2011 11:07:06 AM
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The standard estimate is 3 to 6 months between signing the deal and implementing the technology. I am sure there are back end changes that need to be made at each bank to support mobile check deposit. That is why DeBello is characterizing the revenue for the next few quarters as being 'lumpy'.

They won't make any money until the banks finally offer mobile check deposit to it's customers. I also think your statement of 'a few others' is minimizing their customer base. They have signed:

PNC Bank
Capital One
USAA
PayPal
Schwab
Fidelity

I wouldn't consider those names as 'a few others'. As banks like Wells Fargo lose customers to Chase and others offering Mobile Check Deposit, you will see more banks signing up.

Member Avatar Jeffrey2012 (20.05) Submitted: 8/4/2011 11:37:10 AM
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Well when I read their 10k, their major customer of significance was chase and the rest were smaller banks. I was looking over their other news reports and they have indeed won more contracts. However, their earnings are pitiful and based on valuation, it's pretty over priced. I'm beginning to think this is going to be an actually good play if it could come down in price. The risk is too high right now.

Thank you for that info though. Btw, when are the banks supposed to actually offer mobile deposit to their customers?

Member Avatar VPHM (< 20) Submitted: 9/1/2011 8:54:45 PM
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IMHO you are not seeing the forest for the trees here. The check deposit opportunity only represents a portion of the potential. Don't forget that Chase is about to launch Mobile Photo Bill Pay soon. I find it significant that Mitek actually reported a profit last quarter. Their image character extraction software is now available via the cloud and several other industries are developing apps to eliminate or reduce the point of pain experienced by consumers when completing forms or entering data on their cell phones. Of note is an un-named insurance company and I believe that Intuit is working on a beta application.

From the William Blair report: "The market is growing rapidly, driven by increasing penetration of smartphones (we expect 114 million smartphones to be sold in the United States just this year) and greater use of applications as data costs decline," he added. "We peg the market opportunity at more than $2 billion for Mitek's broader set of applications. With more than 80 customers and a large distribution base (through partners such as Fiserv and Jack Henry), Mitek has a key first-mover advantage that puts it roughly 18-24 months ahead of competitors."

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