Longfin (LFIN) is a $4 billion market cap stock promotion run by a professional Indian stock promoter whose share price is highly likely to implode in the next 6 months as a toxic financing starts to result in significant share issuance. Assuming LFIN actually has any real business (and there are lots of reasons to believe the company is a complete and utter fraud), LFIN shares are egregiously overvalued trading at roughly 100x peak year pro forma revenues and over 550x peak year profit after tax for a business whose profits declined over 50% in 2017. While the stock is very expensive and difficult to borrow due to the stock’s very limited float, the stock does have a reasonably liquid options market. We recommend buying June and September $35 puts as the stock is almost certainly worth less than $5 share and probably closer to $1/share.
Rough Capital Structure
LFIN’s financial disclosure is quite terrible. LFIN hasn’t filed any financial statements since going public so there isn’t any particularly good information on their current cash or debt position. That said according to the financial statements in their prospectus they basically had de minimus cash and no debt at the time of the IPO, raised around $6 million in the IPO, and then did a financing that closed in February which netted them around $42 million in cash.
According to the company’s most recent proxy statement, LFIN’s shares are tightly controlled with the CEO controlling 55.1% of the stock and Stampede Capital -- a company where the LFIN CEO is chairman -- controlling 27.6% of the stock. Stampede Capital is a publicly traded company in India whose chairman is LFIN's CEO and whose CEO is LFIN's CTO.
Rough Financial Information
The company has yet to file its 10-K and hasn’t filed pro forma financial statement to reflect the ziddu.com acquisition. According to the financial data reported on LFIN’s website the company had a sharp decline in revenues and profit before tax in H1 2017 versus 2016.
Stampede Capital filed its Q4 earnings in February. Longfin is included in Stampede’s financial statements. Based on how a “share of profits of associates” line item appears in the financials in the same time period that assets from Stampede were transferred to Longfin I believe this line item represents Longfin’s financial performance.
I believe the share of profit of associates in these financials relates to their ownership in Longfin. These financial statements would then imply that Stampede’s 55.1% stake in Longfin flowed through 395.5 lakhs ($608k) of net income implying Longfin had profit after tax of roughly $1.1MM for H2 2017 or $2.9 million for 2017 an over 50% decline from 2016 levels.
Longfin was founded in February 2017 by Venkat Meenavalli. In June 2017 Stampede Capital (NSE: STAMPEDE or SCAP:IN.) transferred its Stampede Tradex Pte. Singaporean subsidiary to Longfin effectively making Longfin a holding company for this business as well. Stampede Tradex Pte. was founded in 2010 and commenced operations in 2014. At the time of its acquisition by LFIN, Stampede Tradex Pte Ltd was 55% owned by Stampede Capital and 45% by Venkat Meenavalli. Stampede Capital was founded by Venkat Meenavalli -- where he is chairman.
Longfin conducted a Reg A+ IPO underwritten by Network 1 Financial. LFIN’s “best efforts” IPO was super cold with the company after roughly a month long road show only managing to sell a little over 1 million shares out of the 10 million it was attempting to sell at $5/share.
2 days after the IPO, LFIN issued an 8-k announcing that it had acquired an affiliated company called Ziddu.com for 2.5MM shares. After the ziddu.com acquisition, LFIN’s share price spiked to over $142/share in less than a week.
The IPO lockup expires sometime before June 11th.
The Ziddu.com Acquisition
2 days before trading in LFIN’s stock began and undisclosed by the company until 12/15 or 2 days after trading began, LFIN acquired an affiliated entity called Ziddu.com that was 86% owned by an entity that was 95% owned by LFIN’s CEO.
On December 11, 2017, Longfin Corp., (the “Company”), a Delaware corporation (“LFIN”), entered into a definitive asset purchase agreement (the “Agreement”) with its affiliate Meridian Enterprises Pte.Ltd., a Singapore corporation (“Meridian”) and with related affiliates collectively represented by the Galaxy Media Ltd., Hong Kong, for the purpose of purchasing Meridian’s website, www. Ziddu.com, in exchange for 2.5 million restricted Class A common shares of the Company.
The website www.Ziddu.com presents a blockchain solution for micro lending and warehouse financing. It offers Trade and Micro finance in the form of warehouse Coins to the small and medium imports/exports against collateralization of traders warehouse receipts. Ziddu Warehouse Coin is a smart contract that enables Importers and Exporters to use their Ziddu coins that are loosely pegged to Ethereum Crypto Currency.
Pursuant to the Agreement, the Company issued 2.5 million restricted Class A shares to Meridian and certain affiliated parties. These assets include intellectual property associated with the website www.Ziddu.com and all of its content, and any other rights associated with the website, including, without limitation, any intellectual property rights, copyrights to designs, graphics, logos, customer lists and agreements, programming, database, email lists, passwords, usernames and trade names; and all of the related social media accounts including but not limited to, Twitter, Facebook, Instagram, and Pinterest and all internet traffic to the www. Ziddu.com.
Meridian Enterprises Pte. Ltd, is a Singapore a private company in which 95% of the equity is owned by the CEO and chairman of Longfin Corp, Venkat S. Meenavalli.
The other investors in Ziddu were a Hong Kong entity called Galaxy Media Ltd. and 2 Bollywood actors.
Purchase Price. The total purchase price for the Assets purchase shall be 2,500,000 restricted class A common shares of Longfin.
The Bachchan’s involvement in Ziddu was questioned in Indian media when their investment was made in 2015. It’s worth noting at that time Ziddu was an enterprise file sharing company, ie a Dropbox wannabe. Also its worth watching Venkat ramble for 40 minutes trying to explain what Stampede does in the video attached to this article on the Bachchan investment.
At the time of its acquisition by LFIN, Ziddu was in the process of repositioning itself from a mobile gaming company into a crytocurrency company. In LFIN CEO’s interview with CNBC linked to later in this write up he clearly indicates Ziddu was only in beta mode and had no revenues from crytocurrency. The theoretical business Ziddu is claiming to enter is a micro finance lending business using ethereum.