Can Chat App Frankly Be the Next Big Thing in Mobile?

Etienne Moshevich |

Social media networking has become one of the most popular ways to communicate – and as the the younger generation continues to embrace social media, it will only continue to grow. The messaging space is the most strategic and focused area in terms of growth in all of technology today. It’s an industry that has created tremendous wealth over the last few years, and with the likes of Whatsapp, Facebook (FB), Snapchat and Instagram commanding massive valuations, it’s no surprise that everyone is looking for the next big social media app. A number of Silicon Valley programmers and their VC firms have made a name for themselves based on some of these wins, and I believe Frankly Inc. (TLK:CA) is a mobile messaging technology and app company that has the potential to be the next major success story.

The team at Frankly Inc. is striving to create the world’s largest chat network on any topic, anywhere. It has been featured by Google Play (GOOG) and Apple App Store (AAPL) as one of the best messaging apps. Frankly Inc.takes the non-permanent photo messaging services of Snapchat and combines it with the app messaging system of Whatsapp to create a more complex and fun app that can be embedded into any existing mobile application.

What Makes Frankly Unique?

Frankly is the only major mobile messaging company that allows its technology to be white-labeled by other apps, and inserted into any existing app. The most important factor for success in building any app is growing its user base, and there are essentially two ways of doing that: One, you can either advertise your app as being the best and hope people download it, or two, you can embed your chat app into other existing apps that already have millions of users built in. However, Frankly stands out among the crowd by choosing to do both.

Not only are they advertising and working to build their own unique user base, but the company is growing through brand partnerships as well. Why does it appeal to the brands so much? Because instead of spending time, energy and money with a dozen engineers to develop their own chat app, Frankly is able to white-label its proprietary code, thus instantly allowing users of any app to communicate with each other.

Their biggest collaboration so far has been with Victoria Secret’s PINK Nation app. The PINK Nation app has developed an extensive, loyal community of over 4 million users. Through Frankly, these four million users can now interact with each other. None of these apps – be they in fashion, sports or any other industry – have a way of engaging their users on a daily basis. They can’t push product every day, so they need something else to constantly engage their audience. That’s where Frankly comes in. With Frankly, these apps can now have their users fully engaged in conversation amongst themselves through different chat groups and discussion forums – which can mean big business for advertisers and increased usage for the app…it’s a win-win for everyone.

Frankly also leverages the same messaging technology for their own consumer-facing messaging app: Frankly Chat. Imagine being able to control every message you send; that’s exactly what Frankly offers. The app offers disappearing text, audio and video, as well as a patent pending “unsend” feature. By creating a space for users to speak freely and anonymously, Frankly hopes to be an app that makes users feel safe while having private conversations online. What makes the app stand out among the endless other chat apps is its ability for users to browse conversations and engage with other users who have similar interests. The “Grand Central” aspect of the chat lets users openly chat with one another and express their thoughts and emotions while knowing that their messages will disappear after being read. In less than one year of operation, the app has already garnered 2.1 million users on its own merit. The combination of the messaging app plus its white-labeled solution will propel the company to boast over 100 million users by the end of 2016.

I highly encourage everyone to have a look at an interview Frankly’s CEO, Steve Chung did with BNN a few weeks ago after he and his team rang the bell at the TSX:

Frankly.jpg

http://www.bnn.ca/Video/player.aspx?vid=540851

 

Frankly’s Growth Potential

This year, Frankly is focusing on building their user base. Starting in 2016, Frankly will be well positioned to monetize its platform in three different categories: premium advertising and sponsorship, digital and virtual goods, and platform distribution business. Japan’s LINE app made $500 million last year, and Korea’s KakaoTalk brought in $300 million. One of their biggest drivers has been in the virtual goods category by allowing users to buy emotions during their chats.

One of the next verticals that Frankly is looking at is the sports industry. With so many involved fans, it makes sense to offer a service for them to communicate with each other – especially during big events like the Superbowl. Using the three categories, Frankly can bring in revenue for itself but also offer its partners an ability to substantially increase their revenue. For example, offering content-related adds during a sports game (premium ads), selling little emoji football players to enhance the conversations (virtual goods), and after the game is over, links to the new Madden video game (content distribution). Basically, Frankly takes all of the ways that mobile messengers make money today, packages them together and bringing significant value to their partners.

So how much can this be worth?

Whatsapp and other chat apps are being valued around $44/user. Frankly now has 2.1 users, and once you add Victoria’s Secret’s Pink Nation partnership and a slew of others coming down the pipe, they could hit the 50 million user mark by the end of this year.

How much money can Frankly make?

Again, based on comparables, each user generates around $1.50 in revenue. Even if Frankly has to give up 2/3 of their revenue to their partners, that still leaves them around $0.50/user. Multiply that by 50 million users by the end of 2015 or 160 users by the end of 2016, and you get the point.

The company has a valuable and experienced team led by industry veteran CEO Steve Chung. Having just raised over $26 million at $3.05/share, TLK.V is positioned to generate substantial returns for its shareholders over the next 12-18 months. For investors looking for a foothold in the technology sector, this is the opportunity to do so. The company is just getting started, and they have big plans for the future. You need to keep Frankly Inc. on watch now.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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