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A Sleeper of a Company with Big Potential, DigitalTown Sharing Ad Revenue with High Schools

Tuesday, 07 February 2012 08:01 AM

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Hats off to a good deed…and a good business model. DigitalTown, Inc. (OTCQB:DGTW), a developer of a nationwide network of local online communities for high school students, alumni, boosters and local citizens, reported this morning that it will be officially starting its ad revenue sharing program on its hyper-local ad network with high schools March 1st, 2012 across its 20,000 plus high school spirit websites. Starting on that date and following through the 2012/2013 school year, DigitalTown has committed up to 55 percent of its ad space for revenue sharing.

The company said that the bulk will be distributed to local schools with a percentage to the National Interscholastic Athletic Administrators Association (NIAAA). We spoke with Richard A. Pomije, a man who wears many hats at DigitalTown, including being the founder, CEO and Chairman, and were impressed with this "first of its kind program" that can be a benefit to every school district across the country; all 27,000 of them.

Demand has been great for the program, with 41,000 football, basketball and lacrosse teams now listed. Only those three sports are currently part of the program, but it’s a good start. The spirit sites now post scores, schedules and rankings for all teams in a conference, section, state and country with each site cross-linked. In order to keep pace with the current demand, DigitalTown is hiring more employees and expects its employee count to triple in the near term. This could put the small company with as many as 36 employees by the end of the year.

Sounds like they are definitely going to need the added hands at DigitalTown as the business structure is tailored for expansive growth and the competition is basically nil. The company owns domain names for virtually every (about 99%) high school in the country and has built the infrastructure to link them all together. Amassing the platform has been relatively inexpensive in the grand scheme of things. According to the DigitalTown Chief, about $3 million has been spent assembling the site, which is now 550,000 pages deep and still growing. That equates to roughly $110 per school. Tapping into partnerships and through the power of cloud computing, expenses have been able to be kept in check during the build-out and should remain so during full operations, according to Pomije.

The benefits of DigitalTown’s offerings are multi-tiered. On a humanitarian level, DigitalTown provides a valuable resource for schools and students. School pride is somewhat being lost in younger generations and that can help be restored through the platform. Because of its hyperlinked capacity, it can keep students and supporters fully in the loop from a central location as to what is going on locally, statewide and nationwide in the respective high school sports.  From an economic perspective, it can also generate revenue for the schools (there is no cost whatsoever to the school district) that can be used to save some of the programs that are consistently being sacrificed due to lack of funding. On a corporate level, local business owners can not only show their support for the community, but also garner valuable ad space to help bolster business. It’s a multiple win situation.

On the investment front, people care about numbers. While Pomije was careful not to offer-up too many projections, it is not hard to grasp the big picture about what sort of revenue could be generated by DigitalTown when it is in full-swing. As is typical for disclosure purposes, the CEO couldn’t discuss numbers openly, but he did express that test trials have been very successful and topped expectations for the ability to generate advertisers.

That left it to us at OTCShowcase to hypothesize about potential. By our calculations, if DigitalTown could generate $10,000 in advertising from each school on an annual level, that would equate to $210 million in revenue. A $10,000 figure is actually pretty conservative, but grabbing 100% of the 27,000 schools would be a bit lofty. It also should be noted that not every school is included in the program by sheer reason of not having basketball, football or lacrosse programs. Additional schools and programs can be added as the platform is further developed. The number is shaved to approximately 21,000 potential participants by current standards. As such, $210 million was derived by 21,000 (schools) x $10,000. Point being, the potential upside is quite large for a company currently sporting a $20 million market cap.

Pomije said that there has been no shortage of schools looking to participate and that there is a steady stream of phone calls from educators, alumni and boosters eagerly wanting to get the program launched for their schools. DigitalTown.com already has an Alexa rank around 60,000 and receives more than one million unique visitors a month.

Daktronics Inc. (NASDAQ:DAKT), the world's largest supplier of, large screen video displays, electronic scoreboards, computer-programmable displays, digital billboards, and control systems, apparently also sees a solid opportunity with DigitalTown. Daktronics has made its sports statistics software available for high schools nationwide free of charge via the DigitalTown network. The value of such an offering by Daktronics is approximately $20 million. According to Pomije, the two companies are in discussions about implementing real-time scoring into the DigitalTown network that pulls scores directly from scoreboards and posts them onto the appropriate schools’ page as they happen.

The DigitalTown story is one that not many people seem to have heard of yet at this point, but the company could grow long legs in the future as their business models continues to unfold. Trading at only 70 cents, there are less than 9 million shares in the float which could make shares as difficult to grab as a mud-covered football on a rainy night once the platform is fully launched and hitting its stride.  Proper due diligence is, as always, encouraged.

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