The Growth Function for Surge Holdings Inc. (OTCQB:SURG)

Surge Holdings Inc. (OTCQB:SURG) is a rather unique company – unique because it has targeted something that no one else on the planet is targeting. But it’s something that has truly remarkable upside potential in terms of purely organic growth for the company.

The market is effectively a disintermediation of the traditional supply chain and distribution model for common consumer goods. At this point, the company is starting with convenience store inventory management by forming a vast network of relationships with these community hubs, providing them with a platform for logistics that offers them a menu of products outside of just talking with the rep from Pepsi Co or Frito Lay or whatever.

If you’re managing a store like this, you can become empowered and access better products at better pricing from mid-sized companies dying to do business with you – companies that have been cut out of the action by the supranational monster conglomerates, who “in-house” the logistics side and place a heavy hand on the end-market hubs.

SURG has built a platform – the SurgePays Network – that offers partnership to the smaller players and the end-market hubs, taking power away from the giant players, creating better deals for everyone by disrupting the market distortion caused by a game that has been fixed for too long.

This is a massive market opportunity.

How it Will Grow

As this model starts to catch on, SURG is growing horizontally by expanding its network through both organic growth in relationships and through M&A.

A good example of the latter case is its acquisition of ECS, which added 9,800 new stores to the SURG network, including $48.7 million of annualized revenue from 18,000 transactions a day.  This is an immediate economy of scale for the SurgePays Network to accelerate growth.

We would expect more such deals. And as this network expands, the company’s top-line will jump through this horizontal channel.

But, within this network, we would also expect to see vertical expansion, compounding that growth as more and more products and services flow onto the platform, providing members of the network with more and more power, further disrupting the domination of the traditional market giants in this space.

This isn’t a purely speculative fantasy. It’s happening now. SURG is already making real money, with trailing revs coming in at $16M, growing at 21% on a y/y basis. And would strongly expect that rate of growth to accelerate because so little of the market has already been tapped.

That’s also one of the reasons an analyst firm recently put a $3.25/share price target on the stock (which amounts to 983% upside from currently levels).

Why Surge?

The final important ingredient in this recipe is why this company might be capable of tackling this market opportunity. One important answer to that question is because this team has already developed these relationships.

The company’s CEO, Brian Cox, is a veteran in the fintech and supply chain markets, with a particular track record of success at targeting this underbanked space. Much of the end market in question here is built of what economists call the “underbanked” demographic.

In fact, 35% of the US is considered underbanked, which describes people or organizations who lack sufficient access to mainstream financial services and products typically offered by retail banks, and generally don’t have access to credit cards or loans.

Commerce in this group centers on what the company calls “community hubs”.  For mobile phone service, electronic check service, and a range of products, and services provided through a network of convenience store community “hubs”, SURG is an innovator at targeting this underbanked market. SURG provides these community “hubs” a digital supply chain solution, developed similar to Alibaba’s approach eliminating middlemen creating efficiencies and cost savings.

This is a classic market disintermediation story. Where disintermediation is possible, there’s low-hanging fruit. And, right now, SURG is the only company that knows the fruit is there, and is capable of shaking the tree.

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