ATRN Update – True Public Float 700k – 750k
(March 8 Update)
A quick note to GrooveVC community participants. Yesterday we put out a note about the Apple/ATRN-Kazaa article that was published over the weekend where we explained the situation with the very low number of shares in the “true public float” so that Groove participants could grasp the full impact of what is transpiring here with the supply/demand of shares and how this might impact what happens going forward almost as much as the fundamental misvaluation of ATRN’s Kazaa. GrooveVC participants who updated us on their holdings prior to that note indicated an ownership of approximately 480,000 shares.
After that note was published, we received a note from a hedge fund manager at a firm that had acquired a significant but less than 5% stake in ATRN over the last six months. Apparently, they had a shot at one of the early funding rounds with Spotify, but passed on it. As they watched the growth of Spotify and what has happened with streaming music in Europe and watched each new funding round for Spotify vault ahead (the last was at $1 Billion), they started seeking alternative options for getting exposure to what they expect to be a revolution in US music consumption similar to what they experienced in Europe, which ultimately led them to Kazaa and ATRN. Given their holdings, we are now updating our count of the true publicly traded float number that should be adjusted to about 700,000 shares.
As I write this, I see that the volume already traded today is already approaching 1 million shares. Given the long term perspective of the larger GrooveVC holders mentioned in this update (none of whom have sold, three of whom have bought more today) and the restrictive nature of the other holdings listed in the SEC filings, I think it would be fair to say that the remaining publicly available float has changed hands today. Given the volume and what we now know to be the “Truly Available Public Float”, it is apparent that some portion of that float is in the hands of traders. However, I think It would be a knee jerk reaction to assume that all of the new holders are traders. Given what we have learned from our newest participant in the Groove, we know that there are plenty of scenarios where a company’s valuation moves up significantly over a short period of time. That does not mean that the higher price does not still represent a great value if the company executes well in a market that is growing rapidly or if some extrinsic factor tilts the playing field your way (like when the gatekeeper requires their competitors to “pay to play” a fee that exceeds the profit on each transaction).
Consider how many investors likely laughed at those who bid Facebook’s valuation up past $20 billion last year. Who is laughing now – with Facebook’s valuation up to $75 Billion as of last week? Today’s trading range ($5.50 – $6.50 for much of the day) would value Atrinsic at just $30 – $40 million. Forget about the Atrinsic Interactive division (likely worth $10 million+ in a fire sale) and the working capital of $6 million. Focus instead on Kazaa, which has just been handed an enormous opportunity by Apple’s game changing new rules and whose underserved and under appreciated niche (non credit card users) in the streaming music space should likely be accorded a higher valuation than its competitors, many of whom have received VC funding that puts them at $50m+ on the low end and over $100m on the high end. Is it so far fetched for some investors to see Kazaa as having as a potential $100m+ value? Does that seem as far fetched when Pandora and Spotify are getting $1 billion + valuations?
Regardless where you believe the proper valutation for Kazaa lies, the bottom line is that many new investors are now becoming familiar with the Kazaa story. Most people have heard of Kazaa, what most didn’t know until the last 24 hours is that they can buy stock in Kazaa. At today’s closing price of $5.60, the cash adjusted market cap is still only $30 million. Back out the $10m top 10 search marketing agency and kazaa is still only being valued at $20 million. Kazaa is the single most downloaded application in the history of the internet, it has been downloaded over 800 million times over the last 10 years. It is quite likely that most of the people you tell to buy the stock /use the service will say something like the four or five people I mentioned it to today – “Kazaa – I didn’t know they were still around”. Kasaa is still around, they have a great unlimited download and streaming music service, it was just acquired by ATRN and you can invest in the stock at an angel round type valuation that is much cheaper than the venture capitalists are paying for stakes in Pandora, Spotify, Rhapsody, etc. That may not be true for very long because the number of shares that are available as a True Public Float appears to be in the 700,000 – 750,000 range.
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