Is This The Beginning of a Remarkable Short Squeeze?

There have been several interesting developments that bear watching with Remark Media over the last couple of weeks and in particular over the last 24 hours. Several recent corporate actions lead us to believe that Remark’s executives and directors have been doing some bear watching of their own and several actions they are taking make it appear that they may be taking the fight to those betting against Remark through short sales. We believe the spike in trading volume and price going into Tuesday’s close may presage a more significant short squeeze that could be exacerbated by several actions announced by Remark.

After the market closed on Tuesday, Remark filed an 8k with more information on the name change, including an announcement of a change to the stock’s cusip number. Changing the stock cusip number results in each share with the old cusip number having to be exchanged for a share with the new cusip number, which causes each short position to have to prove the borrow. Naked short positions would be unable to comply and those positions could have to be covered by purchasing shares with the new cusip on the open market. With a low float micro cap stock like Remark that with trade volumes as low as 10,000 – 15,000 shares on recent trading days, any significant increase in buying would likely push the shares materially higher in a very short time frame.

There has been a growing suspicion among some Remark investors (including the author) that the trading in Remark stock reflected very aggressive short selling beyond that which we are seeing reported in the near record highs calculated in the Nasdaq short interest report. Today’s announcements lead us to wonder if this might be the beginning of a longer term campaign by management and the board to eradicate short selling in Remark stock. Is it a coincidence that this name and cusip change announcement was made on the day that the Nasdaq released the most recent short interest data showing REPORTED short interest to be within a few thousand shares of the highest in Remark’s corporate history? Is it a coincidence that it was also done just days after the company announced board approval to buy back up to 15% of the company’s shares outstanding, which essentially amounts to 30% of the tradeable shares? Perhaps, but at some point your wonder when the shorts will see there is very real potential for this stock to move dramatically higher in a time frame that would not allow those short positions to be covered without incurring substantial losses and choose to get on the other side of the trade.

Short sellers should also consider that there has been talk over the last few weeks of a transaction that could create near eight figure 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 $10m and that a deal could be imminent. 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 auction and its Banks.com, several income tax related domains and Bikini.com might also draw considerable interest from multiple bidders.

Another potential scenario that could result in an even larger liquidity event for Remark is the monetization of some part of its 5% Sharecare stake. Management has previously indicated an intention of doing that in a time frame that would make a Q2 sale of some part of that stake well within the realm of possible outcomes. Many (including the author) believe the 5% stake in Sharecare could be worth over $50m and we believe there are multiple parties that would have a keen interest in acquiring some or all of Remark’s stake in Sharecare.

In summary, we believe we may be seeing the early stages of a long term effort by Remark Holdings management and its Board of Directors to deal with the increasingly aggressive short sellers targeting its stock. It will be interesting to see how the purchases necessitated by the cusip change over the next few days and the potential for the company to take down a substantial portion of its free trading shares may impact trading over the next few weeks.