Surge Holdings (SURG) is up 35% since I wrote about it two months ago. Is there more room to run? The short answer is yes, both short-term and long-term. I want to cover some exciting new developments that will increase shareholder value. As I examine Surge more closely, I still feel that the market largely missing the huge play here. What is the market missing?

Surge Holdings is currently establishing themselves as a national supply and distribution channel for corner markets. They are rolling out across the country as we speak and should be in 40,000 locations by the end of 2019. And that’s just the start. Once established, they will exercise vast influence and control over this national network of corner stores. That’s the big play.

What might investors be focusing on instead? Perhaps people are eagerly anticipating how the market will receive the various Surge-branded products and services. So am I. Will people embrace a free monthly cellular plan that is subsidized through ads? Will the unbanked get the point of the pre-paid debit card and use it like a checking account? It is exciting to contemplate because if the market even modestly embraces these products, the market cap of Surge could be at $3 billion dollars over the next few years. The potential is staggering.

But that isn’t the big play here. Most are likely glossing over that Surge is quietly establishing an Amazon-like network for a virtually untapped market. But before dig into this, if you haven’t already read my initial report on Surge Holdings, please take the time to pour over it in detail. This current article will be focused on updates and the missed opportunity and not a rehash of my first analysis.

The key points that you should remember from the past article are as follows:

• The SurgePays Portal platform is set to become a nation-wide supply / distribution channel for corner markets and convenience stores across the USA
• Surge Holdings also has a few products and services of their own to sell into that channel
• Surge products and services are focused on the underbanked and the credit challenged
• Some of these offerings include a low-cost smart-phone, free and paid monthly cellular plans and a pre-paid Visa debit card that acts as an alternative checking account

What Investors Are Missing

It is easy to miss the big opportunity with Surge Holdings if you give it a cursory look. Surge is a holding company of various subsidiaries which operate together like cogs in a machine. You need to take a step back to understand how the parts work together as a whole.

Let me paint a picture by telling you a quick story.

It starts with just 1 out of the estimated 14 million foreign workers in the USA who have trouble accessing the same banking and credit-related services that you and I take for granted. This worker makes $2,000 per month. He frequently shops at the corner market near his apartment. While shopping for groceries, he notices a smart-phone for $79 which comes with a free monthly cellular plan. The free plan is ad-sponsored and provides 1GB of data, 10 hours of talk and unlimited texting. This saves him $20 - $30 per month.

His free cellular plan sends him advertisements about the benefits of the SurgePays pre-paid Visa/debit card. He registers online and receives his personalized card with functionality like a checking account. He no longer needs to take his check to Walmart (WMT), wait in line and pay check cashing fees. He simply takes a snapshot of his check with the phone and it is automatically uploaded as cash in his account. He can also transfer funds to family and friends.

What about the corner store owner? He no longer needs to deal with the flood of sales teams trying to showcase products individually. He uses the SurgePays Portal and is able to stock his shelves with a couple clicks from his phone or laptop. He has access to a wide range of products including automotive parts, frozen foods, CBD and of course Surge-branded phones, cellular plans and pre-paid debit cards. Whatever his store needs, he can get. This is a time saver but it also puts money in his pocket. The store owner is a revenue partner and receives income when selling products which were ordered through the SurgePays Portal. He is especially excited to receive the monthly recurring revenue from signing customers up to the SurgePhone Wireless plans which bring him $2,000 per month and rising daily.

What is the potential profit to Surge in this scenario? Surge Holdings could be making $30 on the phone, $5 gross profit per month on the free cellular plan, $20 per month gross profit from that store’s monthly transactions and $20 per month in various fees relating to the pre-paid debit card. It doesn’t sound like much when I break it down that way. But consider what happens across 40,000 stores and with 1 million people using the free cellular plan and pre-paid Visa card.

• $60 million per year gross profit from free cellular phone plans ($60 per year ad profit x 1 million subs)
• $240 million per year gross profit from use of pre-paid debit cards (1% profit margin x 1 million cards x $2,000 per month)
• $9.6 million per year in net profit from transactions relating to SurgePays portal (40,000 stores with $1,000 per month in top-line sales at 2% profit margin)
• $30 million gross profit in phone sales (1 million phones x $30)

Just in products and services alone there could be almost $340 million in gross profit annually. The biggest profit generating item would be the pre-paid Visa card. A 10x multiplier on gross profit would value Surge Holdings at $3.4 billion. That is an upside of 55x the current price. To see a more complete break-down of gross profit, please read the initial report on Surge Holdings. The main difference in this article is that I assume 1 million foreign workers using the pre-paid Visa whereas in previous calculations I assumed only 100,000 or 200,000 users.

Herein lies the missed opportunity. I believe that all eyes are focused on the profit potential of the 3 Surge products and services - the phone, cellular plan and pre-paid debit card. And sales numbers for those products are not in yet. It’s too soon. I would guess that institutional money is holding back from a direct investment for similar reasons. But these three introductory products are not what makes Surge Holdings so powerful. The profit generating potential of these 3 products are huge but that is dwarfed by the real opportunity that is being completely overlooked.

The Big Surge Holdings Picture

The big play here is for Surge Holdings to establish the SurgePays Portal network which can become the Amazon for corner markets and convenience stores across America. If Surge can get their e-commerce platform into tens of thousands of corner stores and encourage store owners to embrace the platform to order goods to stock the shelves, the breadth of reach and depth of power will be impressive. Sort of like Amazon (AMZN) and Paypal (PYPL) rolled into one.  But how will they do that? They already are.
 

Any corner market that accepts even one Surge product (and there are 40,000 of them this year) is also being onboarded to the SurgePays Portal. That is the interface for ordering more Surge products. But it is not only Surge products. There are other products that can be ordered such as CBD, frozen foods and more. Over time, Surge will form more partnerships to add more products to their portal. Right now, Surge is just getting their foot inside each corner store and getting owners familiar with the interface. Products can be added later on demand.

Consider how this can disrupt the market.

Companies wanting nationwide distribution to corner markets will need to negotiate with Surge Holdings. This is the opportunity that is being downplayed or overlooked. Surge Holdings can partner with companies that fit the profile for what would sell in corner markets. They can acquire companies or become stakeholders and provide instant nationwide distribution whether it be for gum, chips, cellphone products, frozen food, car parts or any other product. If you have control over the supply and distribution channel to corner stores – you have real power and influence beyond a couple of high profit products.

In fact, I wouldn’t be overly concerned if the current list of Surge offerings (phone, cellular plan and pre-paid debit) only received a luke-warm reception provided that they gained entry into tens of thousands of stores. Their success is not dependent on their own products. They can partner and acquire companies later that are selling well. The key to this entire investment is getting placed into stores and getting store owners actively using the e-commerce platform. They are building an empire that can be quickly converted into high profit margin sales later. All eyes are on the few products as they overlook the value of this network.

Important Updates for Surge Holdings

A couple of important updates took place since my last article.

1. February 28^th, 2019 - Signed and inked a definitive agreement with AATAC for a potential roll-out to 40,000 stores in 2019. AATAC is a buying group with reach into such stores as 7-11 (SVNDF), Circle K, Shell (RDS-A), Chevron (CVX), Gulf, Texaco and more. This is a vital step in establishing the SurgePays Portal which ultimately has the potential to control the supply and distribution chain. There are 80,000 stores which AATAC represents. Surge Holdings could potentially double their reach in 2020 by adding another 40,000.
2. March 6^th, 2019 – Surge Holdings filed an application to upgrade to the NASDAQ Capital Market. This will likely require a rollback to get to the $4 per share minimum. What will uplisting mean? More analyst coverage and more liquidity. By my estimates, the Surge opportunity is grossly undervalued. But who am I? Just a lone wolf research analyst. Consider the effect when numerous analysts begin to provide coverage on Surge Holdings. The firm will no longer be below the radar and I anticipate a large boost in retail and institutional investments.

What To Watch For Next

Keep an eye for any announcement on how the store rollout is going. For me, this is the most important metric as they build the supply / distribution network. The forecasts are to bring 3,000 – 5,000 stores online every month.

I expect the SurgePays Visa card to be made available any day now. As this has the highest profit earning potential product in their current lineup, I am interested to see how customers use the card. I would hope that they will see the potential as an alternative checking account instead of a gift card.

I am also curious as to how many subscribers will use the free and paid cellular plans. Is the profit margin inline with my expectation? What is the user experience with the ad-serving platform that subsidizes the service?

Summary

Surge is a virtually unknown company that is quietly rolling out into corner markets across the country as we speak. They should be in 40,000 stores by the end of 2019 with the potential of 100,000+ stores total. They have a few products and services that could be worth over $3 billion in market-cap based on my estimates. They may even hit those targets over the next 2-3 years if all goes well.

But the big play that I think investors are missing is that Surge is not just offering products in tens of thousands of stores…that is just their entry to get the foot in the door. Once inside, they offer a supply distribution channel that makes sense for customers, store owners, Surge Holdings and shareholders. They are designing and gaining control of a powerful network linking corner stores nationwide.

Once Surge gets in motion, I expect shareholder value to rapidly increase. I believe that they even have the potential to put on their own Shark Tank style show as they hear local moms and dads pitching their small-time products looking for national distribution. But most importantly, Surge Holdings is a feel-good company that is providing life enhancing products and services to the under-served and forgotten segment of our society. It just feels right.