Remark Media Acquires Vegas.com But At What Price?
Another article by one of our own, includes additional commentary at the end for Groove participants –
Prior to the market opening today, Remark Media announced the acquisition of Vegas.com. The terms of the deal were not disclosed, but this is a huge acquisition for Remark Media and we believe the revenue impact will be quite significant. While Vegas.com was owned by a privately held company who does not report its revenue publicly, we believe it is fair to say that the hotel booking commissions and ticket/show commissions/markups earned by Vegas.com would combine to equal a multiple of the revenue Remark reported for the last 12 months. We did a little digging to try to find information on the amount of revenue that Vegas.com generates and found little to nothing, except one article from over a decade ago that quoted “industry insiders” as saying that Vegas.com did somewhere in the range of $60-$80 million range. If we take that figure and assume even the most conservative lodging commission at the base travel agent commission level of 10% (high-profile destination wholesalers often earn 15% or more), Vegas.com would have been producing $6-$8 million in revenue. If there is any significant correlation between traffic growth and revenue growth, we note that the 3.4 million monthly unique visitors mentioned in today’s release announcing the deal is more than 4x the monthly unique visitor figure (800,000) quoted in that article from 2004. Obviously we are getting well into the speculative realm in trying to come up with a revenue figure due to the lack of publicly available intel on Vegas.com, but we think its fair to say that Vegas.com likely catapults Remark Media from a company struggling to reach the $1 million per quarter revenue level in their seasonally best quarters into one that may consistently do 5x that much or more with Vegas.com in the fold.
The market cap of Remark had fallen to a level that some commentators had suggested equated to the value of its Sharecare stake only, leaving little if any value attributed to the current operations (IRS.com, Bikini.com, Roomlia, etc.). Given the cash burn situation, it follows that this was either a stock deal or management has significantly levered up Remark’s balance sheet and we would not be surprised to see that both (debt and equity) were used to pull off an acquisition of this magnitude. This leaves the big question for current shareholders – how much has our ownership stake been diluted and/or to what degree did we mortgage the farm to gain control of Vegas.com? Announcing the deal without disclosing the terms just two business days after filing the latest quarterly report means we might have to wait three months to find out exactly what we own. For this reason, we suggest that Groovers who had not done so previously should consider taking their original investment off the table now. Given our previous suggestions, it likely that most of you had already done this when the stock was trading at higher levels but we know some have bought back in when the stock traded near its 52 week lows. For those of you who did this or are still at the table with “house money”, we think you might do well to be cautious here and maybe even consider cashing in a few chips given the patience and faith that may be required here. While we are in no way negative on what we know of the deal (we have long believed that Remark would do well to buy more revenue producing online travel assets), we just don’t know enough about the deal and investors in the current market environment appear to be fleeing when they encounter this kind of uncertainty. Taking a little off the table with an eye towards buying back in if the market punishes the lack of transparency seems like a good tack here.
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