One word has come to define the success or failure of an earnings report coming out of any social media company, or any company related to online advertising, for that matter.
That’s the beginning and the end of what the markets are focused on. In a classic case of anticipating changes that already seem obvious, the collective shift away from PCs and towards mobile platforms means that successfully growing your brand on mobile platforms is what truly matters. For Facebook (FB) , Twitter (TWTR) , Google (GOOG) , and any other consumer-facing website or tech company, a clear plan for carving out a piece of the rapidly expanding mobile audience is what investors are really looking for.
It’s that euphoria surrounding mobile advertising that likely helped micro-cap mobile advertising company Voltari (VLTC) explode over the last month.
Voltari Stock’s Inexplicable Spike
Since the end of March, Voltari has clocked gains that make it a more-than ten bagger, gaining over 1,000% and going from under a dollar a share to just short of $10. That’s a pretty ridiculous gain over such a short time period, particularly when you consider that the current share price is coming after it peaked in late April. Since hitting its 52-week high of $21.75 on April 22, the stock is actually down 54.25% in a little over a week. That would mean from the end of March to its peak, the stock gained an eye-popping 2053.47%.
What makes this all the more fascinating is that it didn’t come with the sort of massive earnings beat or buyout rumor that one would normally associate with a huge spike like that. The inciting event appears to be that legendary investor Carl Icahn, already an investor in the company, had taken advantage of a recent rights offering to boost his stake in the company by some 4.06 million shares.
The rights offering allowed existing shareholders to purchase new shares, and Icahn snatched up almost all of the new shares offered. Icahn reported the increase in his holding on 3/31, also revealing that with the new shares his stake in the company had jumped from just under 30% to just over 52%.
Icahn-Do Spirit Raises Investor Confidence
Must be nice, huh? Being Carl Icahn, I mean. You make a big investment and then the investment you made increases in value ten-fold in a month simply because you made the investment. Generating massive returns just by being yourself is a pretty nifty trick.
However, before you get too excited for Icahn, it should be noted that his investments in this company haven’t always been so successful. Icahn had initially invested $50 million in the company back in 2007, when it was still private and operated under the name Motricity. The company IPOed in 2010 and, after peaking at more-than $300 a share (adjusting for a 1:10 stock split in April of 2013) around Thanksgiving of that year, plunged to just over $0.60 a share by late 2014.
Suffice to say, Icahn had already been burned – and burned badly – by Voltari. However, the fact that Icahn was willing to go back to that well appears to have gotten investors very excited about the company’s prospects. More likely, Icahn’s majority stake has been what truly boosted market confidence in the company. More than an activist investor, Icahn’s poised to be calling the shots.
A Legitimate Player, or Just Smoke and Mirrors?
What’s missing from all of this is any discussion of what Voltari actually does. Why was Icahn ready to jump into this stock and take over the company? What value is he seeing there that no one else appears to have seen since 2010? That’s where things get murkier.
Information on Voltari is relatively hard to come by. Take, for instance, this woefully terse description provided by Reuters. Sure, it’s a mobile advertising firm, but there has to be more to it than that if Carl Icahn’s sniffing around, right?
Paulo Santos, writing in a Seeking Alpha piece, strongly implies that the run up for the stock was driven purely by investors failing to realize that Icahn was expanding his existing stake rather than opting to buy into the penny stock for the first time. However, it’s hard to assume that the sort of move in question, involving millions of shares moved and a market cap that remains over $70 million higher than it was before the news of Icahn’s increased stake, could be motivated purely by confused investors.
In the event that Santos’ assertions are correct, namely that Icahn is simply throwing good money after bad to prop up a bad company and that the buying frenzy was driven entirely by those ignorant of his existing position, the persistent ignorance of buyers would be pretty odd. Most of the news coverage of Icahn’s expanded stake at the time correctly identified the nature of Icahn’s position in the company, and the stock continued gaining for weeks. That said, given that there doesn’t appear to be any other major news out that might explain the rapid growth, and the rapid pullback after the stock peaked would seem to indicate at least some of the fervor was misplaced.
All told, even if some traders leapt on the Icahn news without truly understanding what it meant, it would also be a mistake to attribute the entirety of the move simply to confusion. The size of the move, involving millions of shares trading hands over three full weeks and an increase in share prices that, even after a huge sell off, remains at nearly ten times the price before the buying spree, should indicate that plenty of interest in the stock, whether rational or not, was due to more than simple ignorance.
It could be that investors were genuinely bullish on the stock after Icahn gained a majority stake, giving him the ability to take more direct control. They could also be reading into Icahn’s renewed interest as a sign that the company’s genuinely poised to turn things around and become a major player in a huge growth market. Either way, the idea that enough major buyers are involved to keep a share price near $10 – more than a month after the inciting incident, mind you – is a little hard to believe.
Whatever the Future Holds, Don’t Expect Another Voltari Spike
Even if you firmly believe that Carl Icahn is a genius whose interest in the company signifies that it has a bright future, getting in now would involve paying a price about ten times what Icahn did. Would Carl Icahn have any interest in the stock at this price? It’s impossible to know for sure – but it seems unlikely.
In fact, it wouldn’t be shocking if the next disclosure of Icahn’s holdings reveals that he started jettisoning shares at some point after they had spiked over 2,000%, providing another potential explanation for the hard peak and rapid sell-off in late April. That’s purely speculative at this point, but any investor into a company that is experiencing a major a spike like that after wildly underperforming over the last decade who is not at least considering selling would have to be a little nuts.
That said, there’s clearly a ton of potential in the market for targeted mobile ads. The desire to get a piece of what is clearly on the right side of a rapidly changing media landscape is undoubtedly a big part of what created the enthusiasm necessary for this kind of spike. If Icahn’s expanded investment came because he genuinely believes Voltari can become a major player in its industry, and he’s right, Voltari might still be a pretty solid buy – even at $10.
At this point, it’s entirely impossible to say for sure. Regardless, it does seem like a relatively safe bet that whatever happens with this stock over the next month, it’s not going to involve another rapid spike like the one we just saw. If anything, even an interested investor might be well served by waiting this one out. Of course, that would have seemed like smart advice sometime around the end of March, too, so take it with a grain of salt.
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