MARK Chosen As AI Tech Partner for $420 Billion ShenHua Energy

In a press release after the market closed yesterday it was announced that Remark Holdings has been chosen at the Artificial Intelligence technology partner for China ShenHua Energy Company. The $420 Billion market cap ShenHua that does $42 billion per year in revenue has chosen to use KanKan’s facial-recognition, gesture-recognition and tracking capabilities to accomplish the worker safety and management improvements, while KanKan’s artificial intelligence data platform will help ShenHua improve production efficiency. The partnership is a huge get for Remark’s Kankan as it represents a significant foothold for the company’s AI technologies in China’s energy space, further cementing Kankan’s status as an early leader in the race to capture market share in one of the largest energy markets in the world.

An analyst with Tailwinds Research (Carlson) published an excellent write up following his interview with Remark CEO Tao Shing yesterday afternoon, a very bullish report highlighting many factors that should help investors focus on the long term potential of Remark Holdings. With the extreme volatility that accompanies the large and growing short interest in Remark Holdings it can be easy to lose sight of the longer term picture and we agree wholeheartedly with Mr. Carlson’s take on the longer view.

The most telling takeaway from the interview was related to Kankan management bonuses as it was revealed that annual bonuses do not kick in if the company achieves the $30 million revenue figure that has drawn the attention of investors to that division’s momentum, but rather if the company achieves specific MULTIPLEs of that revenue goal. We see this as a rather STUNNING development, as we have long suspected that the company’s expectation of growing its business FOURFOLD over the next year (from $7.5m in AI revenue in 2017 revenue to $30m in AI revenue for 2018) might be setting the target TOO LOW. We now know that the bonuses for Kankan management are tied to generating much more than $30m in revenue next year. We have recently crunched the numbers using Sensetime and other AI startups’ recent fundings to determine a value for KanKan. Using the same revenue multiple applied to those other similarly situated (but lacking the high profile partners of Kankan) companies would result in a valuation of Kankan that exceeds $30 per Remark share. After the Tailwinds Research interview, we are left to consider that our revenue estimate of $30m for next year is almost certainly going to be too low.

As the Kankan story becomes better understood by the investing community, we expect to see even greater volatility as professional money managers jockey to build a holding that is big enough to move the needle. The tricks being employed in the daily trading of MARK shares are clearly evidence that this stock is under heavy accumulation. This is not surprising, as there are only 11 trading days left in the year, MARK’s smallish float makes it difficult to buy in bulk and we wonder how many fund managers would like to show a meaningful position in Remark Holdings (one of the top 20 total returns on the Nasdaq in 2017) to add a little “window dressing” to the annual report they will send out.

Advertisements

December 14, 2017 at 10:11 am Leave a comment

Remark Holdings Under Attack By Short Sellers

After yesterday’s close Nasdaq released its most recent short interest outstanding report. Remark Holdings set a new record with 873,709 – easily besting the previous record set earlier last month by over 27%. While such large increases in the reported short interest often grab the attention of investors, those who have been following the Remark story closely know that there there has been a large and growing naked short interest that is substantially larger than the reported short interest. We note that the volume traded through alternative listings has increased markedly over the last few weeks as well and it appears that the naked short interest has likely grown in lock step with the reported shorts. We also note the significant increase in intraday volatility as short sellers attempt to push MARK shares lower to scoop up stop loss orders.

There was much noise from the short side following Remark CFO Doug Osrow’s sale of MARK shares last week. What seems to be left out of those postings is the fact that Mr. Osrow owns stock options covering many hundreds of thousands more Remark shares, so those arguing that he was selling out his equity stake are disingenuous at best given that the sales only represented a small minority of the skin he has in the game. Shorts seized on those sales to argue that MARK had topped out and it appeared to work for a spell as MARK shares traded down over 20% from its highs at one point, but buyers seized on that opportunity and quickly drove the stock back to new highs over $10.

Capital continues to flow to AI start-ups in China with Samsung participating in a $20M Series B round in Vion Technolgy, a Chinese AI firm focused on machine learning. Other backers: automation company ABB, venture firm Tsing Capital, and investment firm Waterwood. Vion Technology’s products include a smart traffic camera, a face and age recognition terminal for monitoring, and a smart camera that counts people. We believe that KanKan’s operating contracts in the region make it much more valuable than many of these start-ups that we see getting funded each week, likely coming in somewhere below Sensetime’s $3 billion valuation, but significantly higher than the $100m start ups that we continue to see making headlines with new funding rounds and little (if any) revenue.

Remark shares remain significantly undervalued trading anywhere south of $10. We believe that shares will set new 52 week highs several times prior to year end and any material bullish news could cause the shares to gap dramatically higher due to panic buying by short sellers who made the unfortunate decision to hold those bets overnight. Each new high brings more attention to the Remark Holdings story and this should lead to more investors buying shares, extending the virtuous cycle. While MARK is clearly becoming a favorite of swing traders and offers opportunities to profit in that respect, do not fail to hold on to that core position as MARK shares are still undervalued and still well below the radar of many investors and institutional investors who would find its current valuation more than compelling. This should ultimately lead to more buyers with a long term outlook, but in the meantime, the shorts’ machinations are offering many opportunities to buy MARK shares at prices that allow for significant short and long term gains.

December 12, 2017 at 3:15 pm Leave a comment

Does Sensetime Investment Valuation Make MARK Worth $24-$25 Per Share?

We recently updated the investment community on the possibility of Remark Holdings (NASDAQ: MARK) selling a minority stake in its KanKan Artificial Intelligence subsidiary. In that article we noted a similar company (Sensetime) had just raised funds at what was purported to be a $2 Billion valuation and pointed out how the valuation metrics used would value Kankan. At the 20x revenue metric that equated to a $2 Billion value for Sensetime (which does about 3x as much revenue as Kankan), it would value Kankan at USD $600 million, or about $22.30 per Remark share. Earlier today it was reported that Sensetime just received an equity investment of $227 million from AliBaba (NASDAQ: BABA) for a stake that values Sensetime at USD $3 billion post money or about 30x revenue. If that 30x valuation metric is applied to Kankan’s $30m in 2018 revenue it would imply a value for Kankan of $900 million, or approximately $33.45 per MARK share outstanding. While we are not here suggesting that Kankan is worth $33.45 per MARK share, we are pounding the table in support of our belief that MARK shares remain ridiculously undervalued below $10 per share (price at publication was $9) and believe that even $10 would not come close to pricing in the value and potential of Kankan given where other similar companies are being priced.

The article mentioned above goes on to point out that AliBaba has invested close to $500 million in AI startups over the last few months. While we have no knowledge of an AliBaba/Kankan deal, it is getting harder to imagine a scenario where Kankan does not do a raise of this kind with a strategic partner and we note (see here, here and here) that AliBaba remains one of Kankan’s key partners. With AliBaba’s recent investment in AI start ups following its announcement a few weeks ago of their intention to invest up to USD $15 Billion in AI technologies, we would not be surprised to see a raise where AliBaba is a key participant. Regardless whether it involves AliBaba or not, we are keenly interested to hear what MARK announces tomorrow or Monday as CEO Tao Shing (one of 35 VIP speakers at the World Internet Conference in Wuzhen starting Monday) presents from what will be the highest profile platform in the history of the company.

In summary, MARK owns Kankan and comparable companies in the space are getting valued using metrics that indicate values have gone up over 50% in the last two months. While using those metrics would value Kankan at $33.45 per share and we think that may be aggressive, we can easily see why The Tech Trader’s Harry Boxer’s institutional contacts see the value of Remark shares to be in the $24-$25 range (see at 3:48 in the video) and will be shocked if MARK does not push through $10 very soon. With NASDAQ’s report Monday of record short interest for MARK shares and the word on the street that there may be more than double that number in naked short shares outstanding, we see the news that will come out of this week’s conference as likely tp “propel this stock into the mid to high teens” as the Tech Trader indicated we could see in such a scenario.

November 30, 2017 at 3:45 pm Leave a comment

MARK w/ CP Group, Record Short Interest, World Internet Conference

In our post Friday about the picture of CEO Tao Shing seated at the “big boy table” with executives from CDH investments, we did not realize that there were actually executives from at least two firms at the table including both CDH Investments and CP Group. CP Group is Thailand’s largest private company and is one of the world’s largest conglomerates. It is also one of the largest shareholders of China’s Citic Group, owner of the Citic Bank that launched a “direct bank’ lending operation last week targeting Chinese consumers and small businesses with Baidu (a.k.a. the “Google of China“). The Citic/Baidu direct bank is the perfect picture of a prospect that would benefit from Kankan’s social media credit score application and a couple of weeks ago Remark’s official twitter account included a #citic in a tweet that was not unlike others sent prior to the announcement of big deals with other firms.

We are starting to see more and more negative commentary, fake news and other attempts to cast Remark Holdings in a negative light that appear to be driven by those who were unfortunate enough to bet against MARK through short sales. Tomorrow after the close, NASDAQ will release the most recent short interest data and we will be interested to see if what is reported will be a new record short interest beyond the all time high in NASDAQ’s last report. Of course, it is widely believed that MARK’s true short interest is a multiple of what is reported by NASDAQ due to naked short selling. But it will still be interesting to see if the reported short shares exceed the previous record high. It will also be interesting to see if Remark announces any new products or partnerships tomorrow or Wednesday, as it seems that some of the bigger announcements over the last few months have been released very close to the time that the new short interest report is published.

We are also looking forward to Remark Holdings’ CEO Tao Shing’s presentation at the World Internet Conference in China this week. Mr. Shing is one of only 35 “VIP speakers” at the prestigious conference, which is the closest thing China has to our “South by Southwest” conference. We would be surprised if this week passes without very significant positive news being released by Remark and it would be hard to conceive of a better time to make a big announcement than when our CEO is one of the featured speakers at one of the world’s most prestigious tech conferences. Stay tuned.

November 27, 2017 at 8:40 am Leave a comment

Is Remark Selling Minority Stake in Kankan?

Tweets from Remark Holdings’ account Wednesday morning appear to show Remark CEO Shing “seated at the big boy table” with executives from CDH, a firm with $18 Billion in assets under management that has just raised $450m for the stated purpose of investing in Artificial Intelligence startups. CDH most recently invested in Sensetime, a company that offers AI applications similar (with some complimentary) to Kankan and the pricing of Sensetime’s most recent raise implied a total value of about $2 Billion. Sensetime has an AI revenue run rate of approximately $100m, or about 3x the run rate of Kankan.

If a minority stake in Kankan is priced using that same 20x revenue valuation method, it would imply a total value for Kankan of $600 million, which would equate to approximately $22.30 per Remark share. Even if they valued Kankan at only 1/2 the valuation metric used in last month’s funding round for Sensetime, it would value Kankan at $11.15 per share – or about 30% higher than the current trading price of MARK shares, which we find remarkable given the company’s $6+ stake in Sharecare, core business (Vegas.com) worth up to $5 per share and its non core domain businesses worth at least $1 per share. There was already talk that MARK CEO Shing was in China this week meeting with potential investors and that the sale of a minority stake in Kankan to an investor or investors who could add strategic value in the region was being considered. Additionally, we note that Remark has consistently tweeted hints of big partnerships and contracts in the days leading up to official PRs announcing such deals. With MARK CEO Shing presenting as one of 35 VIP speakers at next week’s World Internet Conference in Wuzhen, Zhejiang Province, China, we cannot conceive of a better time or place to announce an initial round of funding to gain the greatest possible exposure for Kankan.

 

November 24, 2017 at 10:00 am Leave a comment

Remark Holdings’ Balance Sheet Upgrade

As Remark Holdings’ (Nasdaq: MARK) reported short interest has increased to a multiple of previous record short interest highs, so has the misleading negative commentary surrounding many aspects of the company with many focusing on MARK’s balance sheet. We believe this is the case for two reasons – 1) MARK has previously had what appeared to be a poor balance sheet and 2) even with the recent improvements, it still takes a little Edgar mining to get the full picture. To save our fellow shareholders the time, we will break down the key things to know here.

1) Remark previously had what appeared to be a poor balance sheet. We say appeared but it actually was a pretty bad balance sheet from a liquidity standpoint – very low on cash and reserves given what was needed for operations and to continue its investment in building out the KanKan platform. Remark struggled with this for many quarters. But the reality was it was never quite as bad as it seemed because Remark owned between 5 and 10% of Sharecare during that time. While that was not particularly liquid from the standpoint of being able to access the value of it in T + 2 days like with a listed security, but we believe it is fair to say that the company could have sold the stake or some portion of it in short order if they were willing to do it at what would have been the going price at that time. However, Remark CEO Tao Shing and CFO Doug Osrow are quite resourceful, they are heavily vested in the long term value of Remark shares (CEO Shing owns approximately 25% of the outstanding shares) and they made very wise capital allocation decisions that have allowed Remark to maintain as big a stake in Sharecare as was possible while still building out the KanKan platform. So Remark arguably did have a poor balance sheet.

2) “Did” is the key word there because the 10Q filed after the close last Monday showed a big turnaround in the company’s near term liquidity picture. And while short sellers have been posting negative commentary to many online forums pointing out that the company only has $15m in cash and $40m in short term debt due within the next few quarters, this is not a complete picture of Remark’s reality at all. Here is a better picture –

Unrestricted Cash as of Sept. 30 – $15.9m
Restricted Cash as of Sept. 30 – $11.6m*
Total Cash as of Sept. 30 – $27.5m*

Unrestricted Cash as of Oct. 31 – $21.3m**
Restricted Cash as of Oct. 31 – $11.6m**
Total Cash as of Oct. 31 – $32.9m**

*Note that $2.25m of this amount becomes unrestricted cash when final debt payment is due. The remaining $9m+ is merchant booking revenue that will be paid to suppliers.
**Due to capital raise through Aspire agreement of $5.3m + $125k cash from sale of FileLater.com

The bottom line for Remark’s current balance sheet situation is that the company could pay off the vast majority of its debt over the next few weeks if they choose to do so, but they will also be in a great position to pay off some portion of the debt and get a new loan at a significantly lower cost than the existing line. Also, there is a very real possibility that the company might choose to monetize some of their non-core assets, in which case they would be able to pay off all of their debt if management chooses to go that route. Thus, those who are spreading the “terrible balance sheet” narrative are either living in the past, failing to read the entire 10Q or they are just generally ignorant and they no longer have a leg to stand on. MARK has a strong balance sheet now and we believe that the company is now in a position to garner maximum value for the considerable collection of assets owned by the company. And while the stock has been rising to reflect the dramatic improvement in MARK’s balance sheet, prospects with KanKan and prospects with Sharecare, we believe that the current $6 trading range is substantially below the value of the company’s holdings (Kankan alone is worth more than $6 per share) and even $7-$8 per share may look very cheap in the near future.

November 20, 2017 at 11:14 am Leave a comment

Remark Holdings Update – Kan Kan Deal with Acxiom and Sharecare Valuation Update

Yesterday Remark Holdings (Nasdaq: MARK) announced a new partnership with Axciom, a $1b+ revenue per year marketing and data services powerhouse looking to tap into Kan Kan’s data and AI applications in China. We believe that yesterday’s announcement of the deal with Acxiom is just the first of many similar deals whereby US based data companies will seek to gain access on the other side of China’s “Great Firewall” and we note that there is currently not another US based company that has the access to the data that Remark’s Kan Kan offers. Kan Kan’s partnerships with Tencent, Alibaba, Sina Weibo and other companies in China have allowed the company to build data profiles from social media and e-commerce sites with currently active profiles for over 1.3 Billion individuals, including 14 billion images and videos, 22 billion posts and over 130 billion comments and reviews. The value of this data trove is enormous and it is growing with each new user, post, review, etc. Companies like Acxiom, Facebook, Google and others currently have no operations in China or access to even begin building out a presence there. We believe that Remark management is working overtime to make Kan Kan the “go to” partner for data and AI services on the other side of the Great Firewall and we believe the Acxiom deal will be the first of many similar partnerships.

There was a great Bloomberg article yesterday highlighting the difficulty US based companies face in gaining access to consumers and data on the other side of the Great Firewall, focusing on Google’s recently heightened effort there.  Its a good read and helps to better understand why Kan Kan’s unique position in that market is so valuable.

A good article by one of our own about the value of Remark’s Sharecare stake was published during yesterday’s trading session. The article pointed out that Remark’s current market cap is below the value of its 5% Sharecare stake, as the health care tech space has seen several sector deals (acquisitions and private equity)that have reset the valuation expectations since Sharecare’s last funding at a $1.2 Billion valuation. Even on the conservative lower end of the $2B to $5 range that could apply depending on which scenarios (IPO, Additional Private Equity Round, Acquisition, etc.) plays out of the next few quarters, the Sharecare stake would be worth about $4.42 per Remark share that is currently trading just above $3.60, which suggests a staggering disconnect between the value of a Remark share and the price range within which it currently trades. With Kan Kan comparables taking down private equity rounds at $100m+ valuations, it would follow that Kan Kan would be as valuable or perhaps more so that we could see $4-$5 in value for Remark’s Kan Kan subsidiary. Thus, there is a case to be made for $9 – $10 in value per Remark share beyond the legacy operations (Vegas.com, Bikini.com, IRS.com, Banks.com, FileLater.com, etc.) upon which the $3.60 per share valuation is apparently based. While we recognize that an AI start up in China and a stake in a rapidly growing privately held company make it a little harder to nail down a firm valuation, we think that investors who can see the forest and the trees have an opportunity with Remark Holdings right now to bag an early stage multi-bagger.

November 1, 2017 at 9:20 am Leave a comment

Older Posts


Enter your email address to follow this blog and receive notifications of new posts by email.