Archive for April, 2013
Groove participants who have been buying shares in Remark over the last month or so can attest to the difficulty in buying even small lots without driving up the price of Remark shares. One of the main reasons this occurs is that there simply aren’t very many shares of MARK to be had. The company only has 7.1m shares outstanding and a significant portion of those (11%) are owned by Discovery Communications (Nasdaq: DISCA) and another 29% are owned by Discovery Communications shareholders. In October of 2007, How Stuff Works International (HSWI, now Remark Media) was created by Discovery contributing the rights to IP related to World Book Encyclopedia content and Discovery’s “How Stuff Works” content in local languages for China and Brazil. As part of that process, DISCA shareholders took a 40% stake in Remark. Remark stock traded as high as $97.80 that month and over the several months that followed, the stock was very volatile and traded between $50 and that high of $97.80 on volumes that were very similar to what we see today.
The takeaway from this should be twofold –
1) Remark (HSWI back then) has always been very thinly traded and volatile based with very low volumes moving the shares substantially.
2) DISCA holders of the stock took ownership when the stock was literally trading as high as 50x its current value.
As Remark noted in its recent filings, the 29% that are now owned by DISCA shareholders were distributed because “… market conditions arising after the consummation of the Merger and securities laws restrictions” made it impossible to sell those shares even if they wanted to. The restrictions on a HSWI sized stake would severely limit the number of shares that could be sold on any given day based on volumes traded and it would limit the percentage of shares they could sell on any given day IF THEY WANTED TO SELL. Of course, if we assumed they wanted to dump all of this stock, that would be a huge negative. However, we do not believe they would have any interest whatsoever in selling this stock at these levels even if there are certain days where they could. The company has added assets that we believe will prove to be substantially more valuable than what DISC contributed, they know that Sharecare’s IPO will be a watershed event that should bring a major increase to the price of the shares and the volume traded in general and they just witnessed the CEO of the company plowing almost $6 million of his own capital into the company over the last six months. While this capital infusion was structured as a hybrid security, the terms were such it will be converted (likely within the current quarter) to stock THAT WILL BE EVEN MORE HEAVILY RESTRICTED THAN THEIRS due to his position as Chairman and CEO. If this had been a straight stock sale, this would likely be some kind of record for an insider purchase of shares in a Nasdaq company in terms of the percentage of outstanding shares acquired.
The bottom line here is that DISC shareholders would likely have difficulty selling if they wanted to due to SEC restrictions, the CEO will be even more heavily restricted, none of the large shareholders has any incentive to sell at these low levels and we have what will amount to nearly 60% of the outstanding shares will be held by the CEO and DISC shareholders. Between the other insider’s holdings and the 10 – 12% owned by mutual funds, it appears that close to 70% of the shares will be owned by sophisticated investors, the majority of whom have significant selling restrictions even if they decide they want to sell. That means we will be working with a “true float” that is somewhere in the 3 million share range. This “true float” represents the total number of shares available to be bought and sold each day by anyone else, including Groove participants, institutions who discover the story and any other investors looking to get shares of MARK. I know that many Groove participants have indicated that they have been trying to buy shares in small lots, to build a position without pushing the stock too much higher. This will get increasingly more difficult as more investors become aware of this situation and begin to appreciate and understand why the CEO has just made such a huge bet on this company’s future. Some may join us in buying MARK shares to get a stake in anticipation of the Sharecare IPO, some may want to own a piece of Bikini.com (!!!) or even IRS.com. Regardless why they decide to join us in buying MARK, it seems like that shares are going to get increasingly difficult to buy at these low levels. As of this morning, MARK is still trading below $3 and we do not believe this will be the case for very long.
As some of you may be aware, we updated the GrooveVC website last night and the due diligence report for our new focus stock – Remark Media (Nasdaq: MARK) was released. You can access the report by clicking here or visiting our home page, http://www.groovevc.com and clicking the link in the menu at the top.
We no longer post the full due diligence reports to the blog due to the many complaints we had previously. Let us know what you think about our new focus stock and also any ideas you have for helping the company “get the word out” about the great community Remark is building at http://www.dimespring.com and their ridiculously cheap stock. Thanks again for being a party of the GrooveVC community.