The trading in recent IPO LongFin Corp. (LFIN) may go down as iconic in this era of frenetic trading in almost anything related to cryptocurrencies and blockchains. After debuting last Wednesday, December 13th at $5 and little to no fanfare, LFIN took off like a rocket two days later on the heels of news of the purchase of blockchain company Ziddu in a related-party transaction. Ziddu is owned by LFIN CEO Venkat Meenavalli, has no revenues, and its website and service is in beta. Such details did not prevent traders from delivering to LFIN a multi-billion market cap. LFIN suddenly looks like one of those biotech research and development IPOs that captures the market’s imagination for a few months or quarters until the first drug trials start rolling in.
If the story ended there, it would be bizarre enough.
The LFIN drama took a surprising and fascinating turn after the CEO participated in a VERY spirited and sometimes contentious interview on CNBC’s Fast Money on Monday, December 18th. In a refreshing display of brutal honesty, Meenavalli insisted that his company’s market cap did not make any sense given his small revenues. He said the market cap is “not justified”, “not reality”, even “insane.” He called the trading in his company’s stock a “euphoric mania.” As an example, he said he went IPO at $5 and a $350M market cap, a price which he thought was a fair price for his company at 5x revenue. Meenavalli emphatically disassociated himself from the mania and euphoria that has captured his stock. To his credit, he noted his 55% ownership of the company sitting in restricted stock with no ability to or plans to sell because of his belief in the company. He promised that he locked hismelf out from selling for the next 3 years.
Meenavalli tried to focus attention on the real merits of LongFin. He was keen to promote his company as a unique fintech company which focuses on disintermediation. The blockchain component pegs its transactions to Ethereum and plans to serve the microlending world where major financial institutions refuse to play. This shadowbanking is a $72 trillion market. Meenavalli plans to make $3M in revenue from Ziddu next year. The current company has generated $28M in revenue in the past 6 months. For the full year, Meenavalli is looking at $65M to $70M in revenue with an $8 to $9M EBITDA. He is relatively confident in a 200% growth rate going forward.
The Fast Money crew was relentless in its questioning as one would expect with a segment tag line of “Crypto Stock or Crypto Scam?” They questioned Meenavalli over failing to disclose its potential plans to buy a blockchain company shortly after the IPO. They questioned the legitimacy of Ziddu’s business. They also questioned Meenavalli over his intentions for the hyper-inflated stock of LFIN.
Through it all, Meenavalli firmly stood his ground. The story from here can still go anywhere. On the one hand, sellers received the all-clear sign to push LFIN’s price back to reality…whatever THAT means right now. On the other hand, the lack of a big seller anytime soon from within the company could reassure buyers that no looming overhang will limit LFIN’s upward trajectory. In other words, for now, imaginations are still free to reach as high as they wish to go.
The stock charts below reveal the breathtaking pace of trading in LFIN the past two trading days from single to triple digits and back to double digits. On Monday, the exchange had to halt trading in LFIN multiple times given the pace of price appreciation.
Note well how much trading volume dropped from Friday’s 15.5M to Monday’s 8.5M. Surely some of that large decline is a result of the dramatically different expense in buying a share of stock. Still, continued declines in volume may signal the mad scramble for LFIN stock is already heading for a cooling period.
Juxtaposing the interview and the trading action, I am inclined to believe the stock should rapidly descend in coming days, maybe even hours. However, in a period of mania and euphoria truly anything is possible. Kudos to the brave souls who try to short this stock. Kudos to the confident souls who buy this stock at any price in anticipation of selling the stock at ever higher prices. All I want to do for now is watch…
Be very, very, VERY careful out there!
Full disclosure: no position