Remark Media Alpha Event & Potential Short Squeeze

February 5, 2015 at 11:41 am Leave a comment

We believe that Remark Shares may be poised to move materially higher in the near term. The catalyst for this move will be the confluence of several factors but primarily driven by the completion of the “Project Dragon” that we now know to be the KanKan social media aggregation app, its launch in China and the announcement of partnerships with Alibaba (Nasdaq: BABA and Tencent (Nasdaq: TCTZF).

Though the company has been as quiet about the development of this project as SEC disclosure requirements allow, we believe it has the potential to be a game changer for Remark and note that they have invested significant resources into the development of this app. KanKan is designed to address the issue of social media fragmentation – where the popularity of multiple social media networks causes challenges for those whose preference for different networks makes it difficult to stay connected with each other. Kankan is essentially a “super meta network” that crosses all boundaries by connecting the various social networks from both a front end and back end perspective. Thus, a Chinese Weibo user can friend an American Instagram user and interact as if they are on the same network. Kankan will be able to connect users from all major social networks in China, US, South America and Europe. Launching first in China, users will eventually be able to seamlessly interact with users of Tencent QQ, Sina Weibo, Instagram, DaZhong DianPing, Douban and other social media platforms as if all were part of the same service.

Against the backdrop of what will likely be a surge in exposure for the Remark Media story generally due to the release of KanKan, we note that a surprisingly large short interest (nearly 150,000 shares) has developed. It appears that the short sellers began to build this position in mid to late October of last year. The short interest has grown each month since then and we have seen the stock price fall from the $6.25 range down to the low 4’s as this short interest grew nearly 500%. While 150,000 shares is not particularly large for the typical Nasdaq listed company, Remark is anything but typical in that it has a very small free trading float due to the fact that insiders and a few accredited investors own the majority of the shares. Due to this factor, the smallish number of shares outstanding and the average trading volume of around 20,000 shares per day;  it is difficult to buy even a few thousand shares without moving the stock price higher. Given the price range of Remark Media ($6.25 down to low $4 range) during the building of these short positions, we would not be surprised to see short sellers pushing the stock higher in a rush to cover their positions,as the surge in buying interest will likely push the shares above their entry prices.

As investors assess the potential for the KanKan app to transform the company’s operations, we expect to see new and significant buying interest emerge. We believe that launch is imminent. If a deal with Alibaba or Tencent is announced concurrent with the launch of Kankan or soon thereafter, we would expect the new buying interest to be of a degree that the stock price will move materially higher and believe that Groove investors who decide to add shares in the current trading range of $4.25-$4.80 will have an opportunity to bank significant double-digit returns in the near term and possibly much more if the KanKan app becomes “a thing”.

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Entry filed under: alibaba, micro cap, short squeeze, small cap, Tencent Holdings. Tags: , , , , , , , , , , , , , , , , , , , , , , .

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