By Lisa Thompson
NASDAQ: GXAI
READ THE FULL GXAI RESEARCH REPORT
Gaxos.AI (NASDAQ: GXAI) again beat on its top line as advertising spend resulted in higher revenues than we expected for both businesses. While revenues beat our estimate, the operating loss they generated was in line with expectations as spending was also higher than expected. The company reported positive net income, or $0.02 a share, on a one-time gain from the sale of its gaming business. We expect losses to be reported going forward until at least 2028. Again, we have to raise revenue estimates as the company is bringing in revenue faster than expected. We are raising our revenue forecast for the year to $10.9 million. The company continues to burn cash and raised another $3.6 million in gross proceeds from a private placement of exercised warrants plus future warrants. This raises the share count by 3 million and adds another 6 million in warrants. We believe that with a $2 million per quarter burn rate, the company has approximately seven quarters of runway, so the dilution is not over.
This quarter, the company released data on its marketing spending. Revenue increased 35.8% sequentially during the second quarter, while ad and marketing expense only increased 13.5%. As a result, revenue per ad dollar improved by approximately 20%, reaching $0.78, up from approximately $0.65 in the first quarter. Advertising and marketing expense represented approximately 128% of revenue during the second quarter, compared with approximately 153% in the first quarter, an improvement of approximately 16.4%. Advertising and marketing expense totaled approximately $3.14 million during the second quarter, compared with approximately $2.77 million during the first quarter. If this trend continues, the company will continue to move toward profitability as long as other expenses are held in check. But this progress comes at a cost as the company continues to dilute shareholders in order to raise cash to fund losses.
Management is exploring ways to increase its profit margins and is testing using different fulfillment methods for the health business. One possibility is to sell direct to customers and pay doctors and pharmacies directly. This might be done for only certain products or with certain medical partners. Further work is being done in Q3 to aid in making decisions.
The One-time Gain
During the second quarter, Gaxos sold almost all its gaming assets, including its mobile-game portfolio and Gaxos Gaming Labs, to Game Foundry AI. For consideration, Gaxos received 2.2 million shares of Game Foundry AI common stock, valued at approximately $1.76 million. We do not know what percentage of the company that is or any of its financials, but it must be below 20% for Gaxos to use cost method accounting.
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