Forbidden Tech rockets on Microsoft deal

Forbidden Technologies has been an incredibly popular share since hitting multi-year lows last autumn. Adding to a recent string of contract wins, the cloud-based video editing platform has just secured a flagship deal with Microsoft giving it exposure to the technology behemoth's biggest customers and international sales force.

After surging as much as 63% Wednesday, Forbidden's share price is now up more than threefold in the five months new boss Aziz Musa has been in charge, and this latest deal could be a game-changer.

Forscene will be the only professional video suite available on Microsoft's Azure marketplace, giving it access to the thousands of media businesses relying on the platform for its integrated collection of cloud editing and distribution services. While it's not an exclusive contract, Musa is confident there is no comparable product available.

As part of the deal, Forbidden will train Microsoft's sales team to sell the Forscene suite. Not only a significant opportunity and validation of the technology, the deal is in line with the commercial strategy Musa launched last year to relocate research and development costs to help drive sales.

The benefits have already been felt this year: two new ABC network affiliates are now using its professional suite and Forbidden secured its first sale of a paid eva channel last month - eva is its video social network. More are likely.

Although revenue from the Microsoft deal should start to trickle through this year and pick up in 2017, management is wary of making any profit predictions, Musa told Interactive Investor.

Still, the boss reckons he can turn the group into a "tens of millions of pounds" business in the next three-five years, targeting 85-90% margin. Valuing the total addressable market at around £4 billion, Musa's target is certainly realistic.

"It's these types of deals that could potentially be transformative," he told us, adding that it's now down to the sales force training.

With an intelligent video editing platform at its heart, Forbidden applies its technology through three separate products: Forscene, eva and editing technology Captevate for the average video editor.

Forscene offers its video editing technology to professional media companies in a single browser for a licence fee. Fees vary, with news media curators paying £4,500 per channel, sports editors typically paying £250 per day per user and broadcast post-production spending £150 a month.

With a 40% surge in customer numbers, revenue inched 3% higher to £709,000 in 2015 and Forbidden managed to reduce operating losses from £3.6 million to £2.7 million after slashing costs.

Initially rocketing 63% to a 15-month high of 15p Wednesday morning, Forbidden's shares were changing hands for 12.25p by late morning, a third higher than Tuesday's close.

One can understand the initial response to this undeniably significant deal. There is, however, a way to go before we see an impact on the bottom line. Evidence of this will likely generate further interest in the shares.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.