Remark Media – Buying The Sell Off

Last week when we updated the community on the happenings with Remark Media we suggested participants consider taking profits on half of their Remark Media stake given the near term boost in the stock to $4+. In the days since then, the stock has traded very high volumes each day and as high as the $4.50 range. We hope that you took our advice to take advantage of that opportunity to take some profits, as the stock has since pulled back to the $3.50 range as of this morning. While we typically advocate for a long term investing mindset vs. day trading or swing trading, we would be remiss not to point out two things here –

#1 our recommendation to sell MARK was 100% based on a price ($4.40+) we thought might not be sustainable in the near term and

#2 our belief was due to the fact that the company needed to shore up its balance sheet and management commentary in recent filings led us to believe that a stock offering was in the works.

Within the last 48 hours Remark has filed an 8k indicating that it amended a stock purchase agreement it has with a big institutional investor that allows Remark to raise capital in a way that is much less likely to have a negative impact on its share price. With a traditional stock offering, we would expect the price to be significantly below the trading price and that the announcement of the offering would drive the shares even lower. With the amended terms indicated in the 8k, the company can now raise the necessary capital without the disruption or dilution we previously expected. Bottom line, our non-trading price related reasons for suggesting that consideration be given to taking profits are now moot. With the stock pulling back to the $3.50 range, we think our investors would do well to buy back the shares they sold and consider adding even more. We are seeing a significantly higher level of interest in the Remark Media story among investors since the recent presentation at the Liolios Gateway conference in San Francisco. In that presentation, management made it very clear that Remark Media’s Artificial Intelligence assets are not only starting to generate material revenue (recently upped to $10m+ annual run rate that recent intel suggests will be very, very conservative), but they are starting to gain traction at a time when investors are beating the bushes to find the next high potential AI stock. With so much investor attention and capital flowing to the smaller players in the AI space (See Veritone’s 700% rise over the last 30 days), we believe that Remark Media’s positioning as a burgeoning leader among AI application providers in China (see below) will soon be “discovered” by investors and this could cause a significant increase in its share price – well beyond the $4.50 range we previously thought to be a good place to take profits. We note that VERI is trading up $7 from yesterday’s close today and just over a month ago it was trading at just over $7.  We think Remark Media shares may attract that kind of attention when investors realize the impact that AI products/services will soon have on the Remark Media income statement and ultimately on its balance sheet.  In the meantime, we expect to see MARK shares trading in a much higher range and we strongly discourage our participants from taking a short term trading mindset, as we think another move to the $4.50 range may be just the start of a move much higher.

Click here to see Remark owned AI application developed to assist with Chinese municipalities’ traffic issues

Click here to see Remark owned AI application developed to assist with Chinese Food Service industry regulation live at work in Shaghai

Click here for a link to a big picture presentation given by management that shows the other lines of business in addition to its AI holdings

 

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September 21, 2017 at 2:31 pm Leave a comment

RAVE Update – Time to Buy

Summary – RAVE has been trading below $2 due to the risk of being removed from the Nasdaq and this has created a tremendous opportunity for investors as the stock will likely trade back to $2+ when the dark cloud of delisting risk officially goes away. We believe Groove participants would do well to buy as many RAVE shares as possible at these levels.

Late last week Rave management announced that its $5m stock offering had been completed in full with all 3,571,429 shares being purchased by existing shareholders. Additionally, the company announced that an additional $2.1 million had been submitted by existing shareholders who hoped to buy any shares that were not purchased by the holders of those rights. Thus, the company’s $5 million stock offering generated demand for over $7 million worth of shares. We are not surprised by this announcement as the consensus among Groove participants was that the opportunity to buy RAVE shares in this price range was more than a great opportunity – it was a gift. Management set the terms of this deal to benefit current shareholders by allowing them to maintain their percentage stake in the company by granting rights that allowed each shareholder to maintain their ownership stake in the company by buying that same percentage of the new shares offered. There has been some negative commentary (message board, etc. type chatter) about the offering being highly dilutive, but that was clearly not the case for long term shareholders given the rights offered to each through the terms of this placement. While some may have chosen not to participate, all RAVE owning Groove investors that we are aware of not only participated, but submitted additional funds to oversubscribe and take down as many shares as possible.

RAVE shares traded above $2 until an 8k was filed indicating that the Nasdaq had declined RAVE’s request for an extension of the time allowed for the company to regain compliance with its minimum equity rule. RAVE had recently fallen below the $2.5 million minimum equity that is required and there was intially an extension granted while the company pursued the stock offering. However, an additional extension request was denied due to the fact that management did not complete the offering in the original time frame (August 8, 2017) it had indicated. It appears that there was a 30 day delay as the company entertained interest from several third parties who were in discussions with Newcastle about either buying a very large stake in the company or possibly even buying the company in its entirety. Since that time, RAVE shares have traded in a price range ($1.40-$1.70) that essentially prices in delisting and the liquidity discount that would be expected with a move to the Pink Sheets or OTCBB. RAVE filed a Hearing Request Form to appeal the delisting, which effectively acts as a stay of the delisting proceedings and during this stay the company (as of this past week) completed the $5m offering discussed above. Due to the $5 million raise, Rave is now well above the minimum shareholder equity requirement of $2.5 million.

We believe the completion of the company’s $5 million equity raise will be sufficient and that the company will remain listed on the NASDAQ. We also believe that the stock has been trading below $2 due to the risk of delisting and that this has created a tremendous opportunity for investors as the stock will likely trade back to $2+ when the dark cloud of delisting risk officially goes away. In the meantime, we think Groove participants would do well to “back up the truck” and load as many RAVE shares as possible at these levels.

September 18, 2017 at 9:17 am Leave a comment

Remark Media Update – Time to Book A Profit

The recent surge in trading volume and price indicate that the marketplace is finally starting to take notice of the extreme valuation discount with Remark, where we believe that the sum of the parts is much higher than the current market cap. Even with the price increase we have seen over the last week, we still believe that a fire sale of Remark’s assets would produce significantly more than $3.79 per share (the trading price as of the close yesterday). However, we do note that the company’s most recent filings indicate a near term cash crunch that will likely result in additional dilution for existing holders. As such, we think Groove community holders would do well to sell half of their Remark holdings today as the stock is currently trading up over $4. While we think the stock will prove to be worth more over the long term, we think there may be a near term shake out related to the sale of additional shares which may be the catalyst for the exit of the momentum players and a 35% gain since our last buy suggestion is a nice profit for such a brief time frame.

September 13, 2017 at 11:48 am Leave a comment

Bullish on RAVE Restaurant Group

Rave Restaurant Group reported Q3 earnings this week and the numbers were about in line with what was expected by analysts and the Groove community. While total sales in both Pie Five (+1%) and Pizza Inn (+2.9%) were up during the quarter, overall sales trends were negative as Same Store Sales continued to show weakness as Pie Five had a decline of 15.8% and Pizza Inn was essentially flat.

Despite the negative sales figures, the overall tone of management on the conference call was actually quite positive and optimistic. Pizza Inn seems to be on an upswing and many of the changes implemented over the last 12 months are starting to show up in the top and bottom lines there.  The discussion about Pie Five also had a positive tone all things considered.  During the quarter RAVE management moved aggressively to close lagging corporate locations and several under-performing franchise locations were closed as well. While this will obviously have the impact of reducing total sales, we think this movement away from unprofitable stores and markets will be a very big positive for shareholders over the long run. On this point, we note management’s comments in the 10Q, where the decline in store count is described as an “aberration primarily attributable to overly aggressive expansion in certain isolated markets” and stated further that they “..expect the overall trend of net increases in Pie Five stores to resume in future periods, although at a moderated pace with respect to Company-owned stores.”

These comments in addition to several made by new CEO Scott Crane on the quarterly conference call leave us with the impression that several new initiatives are showing significant promise. We note that the store closures occurred the last week of the quarter and that many of Scott Crane’s open market stock purchases occurred as the stock fell below $2 in the weeks after the closures and the end of the quarter. Mr. Crane’s recent investments in RAVE stock and convertible notes over the last three months total about $475,000. Given Mr. Crane’s knowledge of the industry, his expertise with store level operations and taking into account the obvious fact Mr. Crane would want to pay the lowest price possible for his stock, we believe that the quarter just reported will likely represent a trough in Rave Restaurant Group’s performance.  As such, we believe investors would do well to use the earnings related weakness as an opportunity to buy RAVE shares and note that as of this writing shares can be acquired very close to the average price Mr. Crane was buying his shares.

May 12, 2017 at 2:36 pm 3 comments

Remark Share Price To Move Much Higher

Remark shares should move significantly higher this week, starting what we believe will be a significant long term uptrend. The reversal began this past week with a move higher that we expect to gain steam this week in part due to a short squeeze caused by the company’s name change / cusip change that became effective as of Thursday. As we discussed earlier last week, the cusip change will require all of the old Remark Media shares to be exchanged for the new Remark Holdings shares. We believe this will cause some near term displacement for the holders of what we believe could be a fairly substantial naked short position, as we believe they will have to purchase shares on the open market this week. Adding to what could be much more aggressive buying than this stock has seen in awhile is a reported short interest that is the highest in Remark company history. For those who have profited from the Remark trade on the short side, this week’s reversal makes it more likely that the money to be made on the Remark trade will be on the long side at least in the near term. We believe a significant portion of the open short interest will be either covered or boxed this week and in either scenario, it will significantly boost the volume on the buy side.

In addition to the buying we should see from those who previously sold the stock short, we think other significant buyers will be in the market this week –

1) Remark Itself – Remark’s board authorized a buyback of up to 15% of the shares outstanding. Bears say the company will not actually do it. We believe that they have not used it yet because they couldn’t and remain within the safe harbor restrictions of Rule 10b-18, because executing a buyback in the days leading up to a corporate action like a name change or a cusip change might be perceived as manipulative. Now that the cusip/name change is complete (as of Thursday) the company is well within a safe harbor to make share purchases. We believe they absolutely should and we believe that will start this week and likely continue through the end of the month or whatever turns out to be the 10th day prior to the company reporting Q1.

One other thought on this – Remark is 50% owned by its CEO and two large institutional investors, so 15% of the shares outstanding amounts to over 30% of the public float. Remark is a stock that has traded an average of only 60,000 shares per day and much less than that on many recent days so it is a very thinly traded stock in addition to having a very small public float. ANY uptick in buying interest would likely push the shares higher and the stock moving higher will increase the urgency of shorts and the other buyers mentioned below.

2) Long Fence Sitters – many investors in our own community have watched Remark with fascination without pulling the trigger to actually buy shares because it was perceived as a “broken stock”. No matter the gravity of the good news released, the short sellers would quickly jump on it and pound the price back lower. However, the company’s newly aggressive stance has changed that outlook significantly and many of those watching from the sidelines started buying again late last week. With just that small uptick in buying interest, the shares rallied over 20%. We think there will be much more of that this week.

3) Traders – We will be surprised if there is not significant interest and involvement from short term traders this week. Traders beat the bushes to find a “situation” like we have with Remark this week and many others may be drawn in by the price action and momentum.
In addition to the uber bullish near term picture, we think this move could have some legs due to several factors we see materializing –
1) Marketplace Recognition of KanKan – On the most recent conference call, the company indicated that its KanKan Big Data AI/Machine Learning division’s first product – a credit scoring service to serve the nascent but rapidly expanding market for Chinese consumer lending – is gaining traction and that they expect it to contribute $5m in revenue in the current calendar year. When pressed on that figure in the Q & A, CFO Doug Osrow indicated that they actually expect the figure to come in higher than that, they just wanted to provide an official estimate that they were certain they would achieve. Additionally, management indicated the company is in the final testing stages of rolling out a second product based on this internally developed technology and that a third was already in the works. The bottom line here is that KanKan is a business that is quickly transitioning from a development cost center to a rapidly growing producer of revenue with very high margins that is targeting an addressable market that could generate hundreds of millions and potentially many billions of dollars long term.

2) There have been rumors over the last few weeks of a transaction in progress that would create significant liquidity for Remark through the sale of its very valuable but non core domain portfolio. The chatter has the company taking down something in the range of 8 figures and that a deal could be announced over the next few weeks. While we have no information beyond what is in the public realm on that, we note that the IRS.com domain alone once fetched $12.5m at aucttion and its Banks.com, Bikini.com and several income tax related domains might also draw considerable interest from multiple bidders.

3) The Sharecare holding remains a tremendous alpha opportunity. The discovery last week of a long term health care industry work in progress at Apple in addition to significant health care industry initiatives at Google require that we consider the possibility that Sharecare may not go public after all. Should that turn out to be the case, we have to think that its acquisition by one of these (or similar) companies would result in Remark Media instantly have an additional $50-$100m in cash. If Apple were willing to pay $3 billion to Dr Dre to get a product whose product is appealing to maybe 1% of the world’s population, what might they pay Dr. Oz for the company most likely to be the nexxus to offer products/services that will be appealing to the vast majority of the worlds population? A $2 – $3 billion buyout of Sharecare would barely warrant a footnote on the financials of Apple or Google but such a deal would add $100 – $150m to the balance sheet for Remark and we do not think a $2 billion + valuation for Sharecare would be that surprising given the potential of Sharecare’s business.

April 17, 2017 at 7:48 am Leave a comment

Is This The Beginning of a Remarkable Short Squeeze?

There have been several interesting developments that bear watching with Remark Media over the last couple of weeks and in particular over the last 24 hours. Several recent corporate actions lead us to believe that Remark’s executives and directors have been doing some bear watching of their own and several actions they are taking make it appear that they may be taking the fight to those betting against Remark through short sales. We believe the spike in trading volume and price going into Tuesday’s close may presage a more significant short squeeze that could be exacerbated by several actions announced by Remark.

After the market closed on Tuesday, Remark filed an 8k with more information on the name change, including an announcement of a change to the stock’s cusip number. Changing the stock cusip number results in each share with the old cusip number having to be exchanged for a share with the new cusip number, which causes each short position to have to prove the borrow. Naked short positions would be unable to comply and those positions could have to be covered by purchasing shares with the new cusip on the open market. With a low float micro cap stock like Remark that with trade volumes as low as 10,000 – 15,000 shares on recent trading days, any significant increase in buying would likely push the shares materially higher in a very short time frame.

There has been a growing suspicion among some Remark investors (including the author) that the trading in Remark stock reflected very aggressive short selling beyond that which we are seeing reported in the near record highs calculated in the Nasdaq short interest report. Today’s announcements lead us to wonder if this might be the beginning of a longer term campaign by management and the board to eradicate short selling in Remark stock. Is it a coincidence that this name and cusip change announcement was made on the day that the Nasdaq released the most recent short interest data showing REPORTED short interest to be within a few thousand shares of the highest in Remark’s corporate history? Is it a coincidence that it was also done just days after the company announced board approval to buy back up to 15% of the company’s shares outstanding, which essentially amounts to 30% of the tradeable shares? Perhaps, but at some point your wonder when the shorts will see there is very real potential for this stock to move dramatically higher in a time frame that would not allow those short positions to be covered without incurring substantial losses and choose to get on the other side of the trade.

Short sellers should also consider that there has been talk over the last few weeks of a transaction that could create near eight figure liquidity for Remark through the sale of its very valuable but non-core domain portfolio. The chatter has the company taking down something in the range of $10m and that a deal could be imminent. While we have no information beyond what is in the public realm on that, we note that the IRS.com domain alone once fetched $12.5m at auction and its Banks.com, several income tax related domains and Bikini.com might also draw considerable interest from multiple bidders.

Another potential scenario that could result in an even larger liquidity event for Remark is the monetization of some part of its 5% Sharecare stake. Management has previously indicated an intention of doing that in a time frame that would make a Q2 sale of some part of that stake well within the realm of possible outcomes. Many (including the author) believe the 5% stake in Sharecare could be worth over $50m and we believe there are multiple parties that would have a keen interest in acquiring some or all of Remark’s stake in Sharecare.

In summary, we believe we may be seeing the early stages of a long term effort by Remark Holdings management and its Board of Directors to deal with the increasingly aggressive short sellers targeting its stock. It will be interesting to see how the purchases necessitated by the cusip change over the next few days and the potential for the company to take down a substantial portion of its free trading shares may impact trading over the next few weeks.

April 12, 2017 at 3:41 pm Leave a comment

Remark Media Reboot

After a recent conversation with Remark Media CFO Doug Osrow, we are again bullish on the near and long term prospects of Remark Media. While there had understandably been concerns among shareholders (and plenty of Groove contributors) about CFO Doug Osrow’s sale transactions last month, we are now convinced that these sales should not be viewed as indicative of a bearish outlook by Mr. Osrow. The sales were part of a 10b5-1 plan established by Mr. Osrow to allow for the sale of enough stock to cover the substantial tax liability he incurred as a result of stock grants he received during calendar year 2016. In addition to his cash salary, the stock grants to Mr. Osrow last year created a substantial personal tax liability that is due by April 15 of this year. Mr. Osrow set up this plan at a time when the average daily trading volume of Remark Media shares was significantly lower than it is currently. Given the volume constraints and the large number of shares that needed to be sold by April it is likely that it would have taken weeks of smallish sales each day if he had chosen to do regular open market sales at year end instead and this would have been likely to drive the stock much lower. Mr. Osrow instead took the 10b5-1 approach to take the timing of the sales out of his hands except to establish the volume parameters that would allow the shares to be sold. While this typically proves to be a prudent measure that protects shareholder value, in this case the parameters set were such that the execution of the sales led to much lower prices than what one would expect and this meant that even more shares had to be sold to achieve the plan’s targeted dollar amount. We note that such plans require that the person setting them up may not exert any subsequent influence over the plan, so the unfortunate timing of many of the sales (and the sales prices) were not within the control of Mr. Osrow, who expressed great frustration with the plan’s results.

We are now convinced that Mr. Osrow’s sales were not indicative of any bearish sentiment on his part. Quite the contrary, Mr. Osrow seemed extremely upbeat about the company’s operational performance and while he was unable to discuss specific numbers due to SEC restrictions, he was clearly very pleased with where the company is right now and he seemed very optimistic about the mid and long term outlook for the company’s operations as well. He also indicated that the company would likely take a much harder look at the best approach for dealing with the personal income tax considerations for future stock issuances given what the company viewed as a very unfortunate outcome with the execution of Mr. Osrow’s 10b5-1 plan. Given these comments, we are confident that the company is not selling shares to Aspire Capital at these prices which had been a major concern prior to this conversation.

Given the bullish near term outlook we took from the call with Mr. Osrow and our already existing belief in the longer term picture for Remark, we believe that Remark Media shares in the current $3.15 – $3.25 range will prove to be very cheap and that it represents a very good entry point for for both long term investors and short term traders.

February 13, 2017 at 3:28 pm Leave a comment

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