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.

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

Remark Media – Kan Kan Update

1) The significance of yesterday’s press release should not be missed or underestimated. With just this single application of the company’s Artificial Intelligence technology, Remark Media appears to be the leader in a niche that would allow the company to generate a very high margin revenue stream that exceeds the parent company’s current $86 million market cap and that is if it only achieves a 2.5% share of the addressable market in China.

2) The core recognition technology can be used in many other applications including traffic monitoring technologies needed by agencies and other state owned enterprises, monitoring blogs and other websites for illegal content (pornography is illegal in China) and many other areas where maintaining compliance with government regulations is crucial for companies to be able to continue to operate. We have good reason to believe that Remark may soon announce deals of similar import that address these and other niche markets in China.

3) Remark’s Kan Kan social data platform is being used to produce a credit scoring product that began being employed by banks and other lenders in China’s burgeoning consumer loan market over the last few months. This product addresses a market that could grow to be much larger than the US market consumer loan market where 95% of consumers already have a FICO or other credit score that can be used in the lending process.

Prior to the open of trading yesterday Remark Media announced has been awarded a seven-figure contract by one of the largest state-owned enterprises in China to provide a facial and object recognition technology to a Shanghai municipal health agency. This agency will use Remark’s Artificial deep learning artificial intelligence application to ensure that restaurants comply with local food safety laws. The deal is enormously significant in several ways and is a game changer in terms of how we believe that Remark stock should be valued. The implications of the contract itself should not be underestimated:

1) for the first time we have hard evidence (7 figure contract) that the company’s Kan Kan subsidiary’s Artificial Intelligence can not only be monetized, but produce significant revenue.

2) the deal’s terms provide the technology for 200 restaurants and this will eventually expand to over 2,000 locations.

3) this product automates monitoring for food handling and safety law violations that are applicable to 8 million restaurants throughout China

4) Landing one of the largest state-owned enterprises in the largest city in China suggests that Remark has already taken a strong foothold in a niche that offers the very real possibility of expansion to service a significant portion of an addressable market that includes 8 million restaurants.

5) If providing the service to 2,000 restaurants allows for a 7 figure revenue contract, it would follow that servicing 20,000 restaurants would produce and 8 figure revenue stream and 200,000 restaurants would produce a 9 figure ($100m+) revenue stream.

6) The service is largely automated which allows for a very high margin revenue stream

 

With just this single application of the commpany’s Artificial Intelligence technology, Remark Media appears to be the leader in a niche that would allow the company to generate a very high margin revenue stream that exceeds the parent company’s current $86 million market cap and that is if it only achieves a 2.5% share (200,000 restaurants would equal a 9 figure revenue stream or $100m+) of the addressable market in China. The core recognition technology can be used in many other applications including traffic monitoring technologies needed by agencies and other state owned enterprises, monitoring blogs and other websites for illegal or (pornography is illegal in China) or pirated content and many other areas where maintaining compliance with government regulations is crucial for companies to be able to continue to operate. We have good reason to believe that Remark may soon announce deals of similar import that address these and other niche markets in China. We note that the company has been posting images to its Twitter account of several instances of its technology being used in different ways, very similar to how they did with the restaurant application in the weeks prior to yesterday’s announcement.

The bottom line here is that Remark Media’s China based Kan Kan subsidiary is a company within a company, a 2-3 year old start up that is now starting to generate revenue whose valuation (if independent) based on current prospects and revenue generation might allow it to achieve a marketplace valuation that exceeds the current market cap of its parent company Remark Media. We believe that Remark Media’s stock price is in no way reflective of the value of the assets the company now owns and suspect that hedge funds and other sophisticated investors are heavily involved in the day to day trading (note yesterday’s 4 million+ shares traded) of Remark shares now and that much of the recent volatility may be related to those firms attempting to increase the percentage of Remark shares they own. This should not be surprising considering:

1) Remark’s 5% stake in Sharecare will likely prove to be worth nearly $100 million in either an IPO or an acquisition scenario. We note Sharecare’s recent deal for sponsorship of the NBA’s Atlanta Hawks as an indicator of attempts to gain a broader mainstream brand awareness and that plus recent hires leads us to believe that the IPO process may be soon to follow.

2) Remark’s Vegas.com subsidiary continues to grow its top and bottom lines and take market share in the booking of lodging and ticketing and appears to be growing at a double digit rate that could allow it to produce substantial gains in revenue next year with improving margins.

3) Remark still owns a very valuable high revenue producing domains/businesses that include IRS.com, Banks.com and the Bikini.com business that may be worth $10m+.

Remark Media arguably owns operating assets that would be worth over $50 million even in a fire sale scenario, a 5% stake in Sharecare worth +/- $100 million and a rapidly growing Kan Kan business that may prove to be worth more than the rest of the company combined. Investors can currently gain a share of this $150 million + Kan Kan company for a share price ($3.85) that values the entire company at only $85 million. At the risk of understatement, Remark Media shares are quite cheap anywhere under $5 per share and it represents among the greatest downside risk vs. upside reward setups we have seen in many years.

September 28, 2017 at 9:25 am Leave a comment

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

 

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

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