Is EVR Holdings plc a buy after partnering with Microsoft Corporation?
Shares in small-cap tech company EVR Holdings(LSE: EVRH) have risen by more than 20% this morning after the company announced that it had inked a strategic deal with tech behemoth Microsoft.
Specifically today EVR, which has already signed deals with two of the three major music labels (Warner Music and Universal), revealed that its subsidiary MelodyVR Ltd will collaborate with Microsoft to launch the MelodyVR platform across all Windows Mixed Reality devices. Further, Microsoft will provide MelodyVR with funding and technical expertise to support the partnership.
No financial details of the deal have been disclosed, but it's clear that this is a tremendous opportunity for EVR and the company's investors. Indeed, according to today's press release, there are currently over 500m devices worldwide running Windows 10, which will have access to the forthcoming Windows mixed reality hardware. The agreement will see the MelodyVR App made available on all Windows Mixed Reality devices.
Funding for growth
At the beginning of this month, EVR raised £5m via the placing of 63m shares to further fund its growth, and it now looks as if the company was thinking of this agreement with Microsoft when it decided to tap shareholders for extra cash. Melody VR is the company's flagship virtual reality product. The technology is designed to connect music fans to the artists they love via next-generation technologies such as virtual reality, which will allow them to get up close and personal with the stars.
While it is true that virtual reality is still a fledgling and highly speculative market, there's no denying that the potential could be enormous. The market has grown exponentially with the number of virtual reality users increasing from just under 200,000 to over 7.5m during the space of three years. By the end of the decade, market research claims that there could be 225m virtual reality devices in consumers' hands.
EVR is trying as hard as it can to get a share of this market. During 2016, the company saw MelodyVR's multi-year exclusive partnership agreements with venues and promoters increase by over 550% and a partnership with Telefonica put the technology in over 600 O2 stores in Germany.
Plenty to do
Despite this increased exposure, the company reported a significant loss of £2.6m for the year. City analysts don't expect it to report a profit this year either. With this being the case, it remains to be seen for how much longer the £5m recently raised can support the firm. Having agreements in place is one thing but being able to generate revenue from these agreements is another issue altogether.
So overall, while EVR may look attractive based on its latest agreement with Microsoft and the huge potential market ahead of it, it might be better for investors to wait for some actual revenue before taking part in this growth story.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.