I continue to believe that Remark (NASDAQ:MARK) stock has vast amounts of potential. But with the company seemingly having difficulty converting that huge potential into revenue and profits, investors should move to the sidelines for now.
Also worth noting is that the company, to my knowledge, has not articulated a compelling long-term strategy.
Huge Potential and Some Progress
Remark has shown that it has the ability to use artificial intelligence, in combination with other technologies, to create products that meaningfully help schools and other companies.
For example, Remark sold “a proprietary platform to help automate certain repetitive functions” to over 300 schools in China. Additionally, the company recently announced that it had made a $5 million deal to provide “AI-driven workplace safety solutions to 100 industrial real estate construction sites,” with most of the installations set to occur in three Chinese cities.
And in the U.S., the company unveiled a deal to provide its intrusion detection system, called the Smart Safety Platform (SSP), to Florida passenger train operator Brightline.
“SSP’s AI-powered intrusion detection tools operate 24 hours every day and are able to detect and accurately cover a wider range than humans can without assistance,” Remark CEO Kai-Shing Tao explained.
As Tao suggested on the company’s third-quarter earnings call, held on Nov. 15, Remark has a chance to sell SSPs – which he said can also detect track anomalies – to many other transportation networks in the U.S. And as he also indicated, given the recently passed infrastructure law, transportation systems will have a great deal of money to spend on technology. As a result, Remark should be able to interest multiple transportation entities in SSPs, Tao indicated.
He could very well be correct.
Moreover, Remark is providing its AI-powered Smart Self Service System to hundreds of branches of several different banks in China, Tao noted. Finally, the company is in the process of implementing its “Smart Community System for facial access control, temperature plus mask plus health coach check and safety monitoring” in over 500 communities, the CEO reported.
Finally, Remark has started proof-of-concept trials of its AI tools systems with a large unnamed Chinese airline.
Weak Financial Results
On the other hand, 15 years after Remark was founded and three years after it began developing AI products, the company’s financial results are unimpressive. Further, its earnings are failing to surge nearly as much as I thought they would when I wrote a couple of bullish columns about MARK stock last year.
Specifically, on Nov. 15, the company reported that its third-quarter revenue had tumbled 55% year-over-year to $1.2 million. Remark blamed the sharp decline on Covid-related lockdowns in China and “technical issues” faced by its American data analytics partner.
Still, for all of 2021, Remark expects more than $15 million in revenue. While that’s more than 50% higher than the $10 million of sales that the company had in 2020, as a practical matter, an increase of about $5 million isn’t very impressive. Moreover, in October, Remark said that it was looking to sell its system to over 3,000 schools in China, generating $18 million of revenue in the process.
The fact that the company expects one of its most high-profile initiatives to generate less than $20 million of revenue is, to put it mildly, disappointing.
Playing the Long Game?
It’s very possible that Remark has some kind of long-term strategy that it hasn’t yet disclosed. For example, perhaps the company plans to steadily raise the fees that it charges for its AI tools. Or maybe it has additional equipment and/or services that it intends to sell to its installed base once it reaches a certain size. Alternatively, perhaps Remark is looking to sell itself for a high price sooner rather than later.
Unfortunately, however, I’ve seen no indication whatsoever that the company is considering any such steps or has any long-term strategy that could exponentially increase its revenue.
Two factors have increased my concern about the latter issue. First, as I pointed out in a previous column on MARK stock, Tao appears to have no executive experience at companies that sell products or at a major technology company. As a result, it’s possible that Remark does not have a compelling long-term plan.
Finally, the company’s decision to enter the NFT market is puzzling and worrisome. Given the huge amount of competition in the space, I’m not optimistic about Remark’s chances. What’s more, the sudden pivot towards the crowded sector may make the company lose its focus and lowers the chances that it has a good long-term strategy that it’s consistently following.
The Bottom Line on MARK Stock
Remark and its stock have a great deal of potential. But, to this point, the company’s financial results have grown much less than I had previously anticipated, and I’m unsure if it has an effective long-term strategy.
Given these points, along with the recent rally of MARK stock, I recommend that investors sell the shares while keeping a close eye on the company. If its financial results improve a great deal and/or it articulates a compelling long-term strategy, investors should consider buying the shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.