- Ominto, an online cashback provider, has risen over 150% solely on the hype and exposure of being uplisted to the Nasdaq from the OTC exchange on 2/14/17.
- It has tiny sales, stagnant growth and consistently loses $1M-$3M per quarter over the past four years.
- A CEO of a top cash back website we interviewed hasn’t even heard of Ominto or its cash back website Dubli.com.
- Ominto has made what appears to be a non-arm’s length merger with a company that has a completely different business.
- We estimate Ominto’s value to be $1-$2 per share, for an eventual 90% decline.
Imagine Ominto was a private company looking to raise money on the TV series Shark Tank. Now imagine the CEO going into the room and saying:
“Hi Sharks, our business is in the online cash back industry. For the past four years, we have miniscule to no growth, average about $20 million per year in revenues, and lose about $10 million per year. We also acquired 40% of an animation company that has not produced anything notable. We’d like $10 million for a 5% stake in our company.”
Upon hearing this, Mark Cuban would immediately fall back in his chair and say: “Are you crazy? I’m out! I’m so out!”
If Ominto was a private company, we believe it would at best be worth $10M-$20M, or below $2 per share.
Ominto (OMNT) is an online cash back company. It provides online cash back shopping deals through ominto.com and dubli.com, which have the same content. Cash back companies are a dime a dozen and it’s a tough business due to high competition and need for constant marketing to entice more customers. Ominto has had low revenues and continual losses every quarter for the past four years. We’ve found that Ominto isn’t even among the top 20 cash back companies. The company hasn’t said it publicly, but it appears from a recent strange merger with no synergies, that it’s transitioning into the animated film business.
Ominto is a former OTC exchange traded stock that just recently got uplisted to the Nasdaq on March 20th. The stock is up over 150% within the last three months due to the excitement and new investor exposure from being on the NASDAQ. The company has liberally distributed its stock to insiders and partners, and some are just now able to sell their shares. In one case, April 5th will be the sixth month mark which allows the private placement investors to sell who bought one million shares at $4 apiece on October 6, 2016.
Additionally, in December, Ominto engaged in a non-arm’s length merger that has no apparent synergies and the Company didn’t report it to be non-arm’s length. Most of Ominto’s executives are based in Europe, with the CEO and COO living in Dubai, and Lani Pixels is based in Denmark.
Note, we tried to contact Ominto’s investor relations with questions and they replied:
“In accordance with Regulation FD, we are unable to provide you with any more details than what is in our filings with the SEC.”
We asked them why do they have an investor relations department? They didn’t reply to that question.
In our experience, companies that don’t talk to inquiring investors are often bearish about their future. They don’t want to give anything negative away. Companies that are bullish about their future are usually eager to speak to investors and explain their plans for the future.
If Ominto Was A Private Company – What Would It Be Worth?
Ominto is a struggling company that’s flailing in the wind, with a history of paying employees in stock because they keep running out of cash. The cash back industry requires constant marketing expense to keep up revenues, which is why Ominto has had a $1M+ loss every quarter since 2013. The proof is in the pudding. The following are Ominto’s quarterly revenues, losses and marketing spend since 2013:
Source: Ominto SEC filings
As shown above, the revenues are very small, and the losses are over $1M per quarter except for a couple of quarters in 2013. For its fiscal year ended 9/30/16, total revenues were $17.7M and the loss was -$10.6M. At a market cap of $200M, this puts its price/sales multiple (P/S) at about 11, and it loses money hand over fist. Why would anyone pay that much for this company?
Some hot internet stocks have a P/S of 10 or more because they have a unique, disruptive technology and their sales are growing dramatically. It’s clear that Ominto doesn’t have a disruptive technology and is not growing. Maybe it could grow revenues if it poured more money into marketing and took a bigger quarterly loss, like it did in quarter ended 9/30/15. It’s an online cash back company that can’t seem to book a positive quarter no matter how much it spends on marketing.
A Questionable Merger
On 12/13/16 Ominto announced that it had for some reason acquired 40% of Danish animation firm Lani Pixels A/S for $500K in cash and $8.5M in stock valued at $3.50 per share which equals 2.43M shares. At a $10 per share value, the dollar amount of stock given equals $24.3M.
Investors should ask what is the purpose of this merger? How would an animation company benefit a cash back company? What are the synergies between the two? We don’t believe there are any synergies. In the announcement, Ominto says:
Ominto plans to continue to develop Lani Pixels as a marketing service company…
It also says on the Ominto announcement:
The expertise we gain from Lani Pixels animation content will advance our marketing acumen to a new level of sophistication
However, Lani Pixels isn’t a marketing services company, it’s an animation company. Look at the Lani Pixels website. Under the “what we do” tab, it says absolutely nothing about marketing:
In the list of things that the company does above, it says absolutely nothing about marketing. If you go around the website, you can tell the company is about animation, not marketing. It doesn’t even hint at it.
Lani Pixels doesn’t appear to have produced much animation at that. Here, it produced a film about the history of LEGO. Here is a short Happy Holidays video from Lani Pixels. These films are cute, but the movie/short film business is very hard to make money in. Very rarely is it a good investment.
Since animation is much different than the cash back industry, then why did this merger happen? What is the connection here? The devil lies in the details. Our research found that it appears to be a non-arm’s length merger. The executives of both companies used to work together at LEGO Group.
In the merger announcement, it states:
Lani Pixels was founded by Kim Pagel and his son, Thomas Pagel, in 2000. Mr. Pagel has a long history in the creation and production of animated film content, including many years with the LEGO Group.
The key words here are “LEGO Group”. That’s also shown in Mr. Pagel’s Linkedin profile:
Above, it shows that Mr. Pagel worked for 18 years for LEGO Group through the 80s and 90s. Looking at Ominto’s CEO, Michael Hansen,