In 2015, Dr. A.P.J. Abdul Kalam, former president of India, presented the founder and president of the Pentagram Research Centre, Dr. E. G. Rajan, with a medal for his lifetime achievement in teaching, research and industrial development. Rajan is a world-renowned data scientist and his career speaks for itself.
The Pentagram Research Centre is one of the leading think tank type entities in Asia and is responsible for some of the biggest leaps in information systems technology in India across the last two decades. Health care imaging, data security aggregation, spaceflight thermodynamics – you name it, Pentagram has had a hand in driving it forward. Rajan is the keystone of the organization.
At the end of last year, however, he revealed he was stepping away from his native India and coming to America. His motivation? He joined a company called Helios and Matheson Analytics Inc. (HMNY, Financial) as chair of the company's science and technology development board.
Rajan's interest in this company more than justifies a look. It turns out the company is worth highlighting as one to keep an eye on.
The story starts back in June of 2016 when Helios and Matheson announced a pending merger with a company called Zone Technologies Inc. By way of a brief introduction to the two, Helios and Matheson is a data analytics company headquartered in New York City, with offices in Silicon Valley and a client roster that includes a spate of Fortune 500 companies. Zone Technologies is a Florida-based company, with offices in Israel, focused on the development of mobile device applications. Specifically, the latter's flagship application, and the one that forms the meat of this discussion, is called RedZone Maps – something we will look at in a little more detail shortly.
Post initial announcement, the merger progressed throughout 2016. In July, the two companies announced they had entered into a definitive merger agreement. At this announcement, it was reported that each share of Zone common stock would be converted into the right to receive 0.174 shares of common stock of Helios and Matheson, for an aggregate of 1,740,000 shares of the latter. Further, the merger consideration would represent approximately 33% of the issued and outstanding shares of Helios and Matheson after giving effect to the merger and an equity financing of at least $5 million and up to $10 million.
Fast forward to November and the merger finally closed, as per the above outlined terms.
With the merger consummated, the two companies could get started on combining their current strengths and building on what was slated to be, and what is now, the combined entity's flagship product – the above mentioned RedZone Maps.
Many reading will probably already be familiar with the RedZone Maps application. It has been available for iOS since March of 2016 and grew throughout the year to become one of the top five navigation apps in Apple Inc.'s (AAPL, Financial) app store. It has just recently been made available for Android users and is rapidly making its way up the charts on Alphabet Inc.'s (GOOGL) Play Store.
What is the application?
As its name suggests, RedZone Maps is a map-based navigation application designed to replace the more traditional satellite navigation systems offered by companies like Garmin Ltd. (GRMN, Financial) and TomTom NV (TMOAF, Financial). Users input their destination and the application automatically identifies the current location. Using these two inputs, it instantly provides a real-time route map, which the user can follow while driving (or walking) to reach their destination. Of course, there are already a number of applications available that offer this service. Perhaps the most popular right now is Waze. For those not familiar with Waze, it is a community-driven navigation application with roots in Israel dating back to 2006. What initially started off as an Israel-only navigation application grew to a global network by the turn of the decade. In 2013, the application (technically, the company behind the application, but with the Waze application being the driving factor behind the transaction) was acquired by Google. The deal, after a host of competition commission investigations in both Israel and the U.S., eventually closed out for $1.1 billion. In other words, Google paid $1.1 billion to acquire an application built using and which relied (and still relies) heavily on its own mapping API.
So with an already established application on the market, and further, one now owned by technology behemoth Google, how can Redzone Maps hope to compete?
Here is where things get interesting.
RedZone has designed the application to mimic Waze in many aspects, but with one key upgrade – it displays crime statistics in real time, for the location within which users reside at time of use and within which they will reside if they follow the route outlined by the application. If there has been a stabbing, the RedZone app highlights the details. A theft, the same. This expands to a host of other reported crimes, with the data drawn from the real-time crime log databases of the towns, cities and states in question. Building on this upgrade, the data enables RedZone to offer alternative routes based on safety. If there has been a higher number of crimes committed recently in a particular area, RedZone will offer a route that travels through an area with lower recent crime levels. No other navigation applications do this right now, which is why RedZone has managed to climb the application download charts so quickly, despite having to compete with applications like Waze for users.
Essentially, it is Waze with a safety upgrade.
That is the technology; what does the combination of Helios and RedZone hope to achieve that the latter was unable to achieve on its own?
First, this merger offers RedZone immediate access to public market capital. The IPO market has been relatively weak over the past 12 months and many companies have sought alternative routes to public financing. Things like reverse mergers and – as is the case here – acquisitions streamline the process so the company does not have to rely on market sentiment to ensure a successful transition.
Second, and perhaps more importantly from an operational perspective, Helios is a big data company. These community-based applications rely on huge amounts of data to make the user experience as thorough, robust and smooth as possible. If RedZone is going to unseat Waze as leader of the space, it will need to compete with Google's data capabilities. Of course, to expect any entity to compete with these capabilities is naïve, but Helios at least offers RedZone access to a big data analytics platform – something it previously did not have.
There is also a talent acquisition element to the picture. As outlined in the introduction, Rajan is now set to play a key role in the development of the RedZone application going forward. Chances are, without a public entity like Helios, a company that has a client network that includes some of the largest companies in the U.S., associated with it, people like Rajan would not be interested in joining RedZone's team.
What is next?
Now, it is all about user acquisition. In the application development space, there is an element of snowball effect that favors applications that manage to reach high positions on download charts. With RedZone in the top five navigation apps on iOS, and looking set to match or beat this positioning on the Android OS, this snowball effect should help draw users throughout 2017. As these users come in and the company takes advantage of Helios' platform to build on the utility of its core offering, we expect Helios to revalue to the upside.
There are risks of course.
The application development space can be fickle and early success is not always an indicator of long-term potential. There is also a financing risk. In order to boost user levels, Helios is going to have to allocate a pretty substantial marketing budget. The current cash on hand (just $1.2 million as of Sept. 30, 2016) will not come close to fulfilling this budget. As such, we are probably going to see some degree of fundraising in the near term. The company filed a $50 million shelf registration statement back in July, good for the next three years, which supports this suggestion.
With that said, however, and on the back of the merger's closing, RedZone is now in a much stronger competitive position than it was just three months ago. If it can even maintain its current growth trajectory, it can and will pose a serious threat to its peers.
Disclosure: The author owns no stocks mentioned in this article and does not intend to buy shares in any companies discussed.
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