It's not often that a CEO describes the valuation of his company as "insane" in a televised interview, but that is exactly what Longfin CEO Venkat Meenavalli did on CNBC Monday night. Longfin is the first financial technology (fintech) company to list on Nasdaq using the Reg A+ listing loophole created by the JOBS Act of 2012, and that certainly contributed to the stock's amazing run. Without a marketed IPO process, Longfin created few ripples in its first two trading days on Nasdaq, and closed its second day of trading at $5.35 per share after commencing trading at $5 per share. Friday morning Longfin announced the acquistion of Ziddu.com from its CEO, Mr. Meenavalli, and then madness ensued, with LFIN shares trading up to $22 Friday and then jumping to nearly $130 per share at noontime on Monday.
As Mr. Meenavalli noted during his CNBC interview, the core Longfin business, acquired earlier in 2017 from another company controlled by Mr. Meenavalli, Stampede, is profitable and on track to do $60 million in revenues this year. The sizzle in the stock, obviously, though, was Ziddu.com, and that website's positioning as a blockchain-linked provider of business financing for small businesses in emerging markets using a currency linked to Bitcoin and Ethereum ticked all the boxes for traders. Mr. Meenavalli was quick to note on CNBC that Ziddu is still in beta, but with cryptocurrencies all the rage that didn't stop traders from bidding LFIN's price to astronomical levels.
Because of its REG A+ status financial details on Longfin are scarce at best, and it has yet to be disclosed whether Longfin was able to raise the $50 million in equity capital (10 million shares at $5 per share) that were comprehended in the company's offering circular. That circular discloses an existing share base of 72.9 million shares of common stock, so assuming the company fully completed the 10 million share IPO before its listing--Longfin would have only had to raise $6 million to meet the listing standards of the Nasdaq Capital Market, the exchange's lesser board--that would have meant that at some point Monday the stock market was valuing LFIN at $10.8 billion.
I have seen all sorts of different figures quoted in the financial media for the size of LFIN's crypto-inspired bounce, but again, that's the problem with manias. People rarely check the numbers, and with a Reg A+ offering, there aren't that many numbers to begin with.
So, LFIN paid Mr. Meenavalli 2.5 million common shares for Ziddu.com, a price that as of yesterday's close would have valued that asset at $170 million. The difference between the post-IPO value for LFIN of $410 million (assuming full completion) and LFIN stock's valuation high-water mark of $10.8 billion cannot be explained by the addition of that particular asset. So, the market can create $10 BILLION DOLLARS in valuation for a company that had not even 1/20th of that valuation the day before? Yep, it happened. That's bitcoin-mania at it finest.
