TikTok Rival Led by MoviePass Ex-Chairman Enthralls Day Traders

This post was originally published on this site

(Bloomberg) — Meme investors are embracing a would-be rival to TikTok led by the former chairman of MoviePass, just months after he agreed to settle U.S. complaints that he deceived customers before the ticket discounter collapsed into bankruptcy.

Vinco Ventures Inc. has almost quadrupled in two weeks after catching the eye of day traders ahead of its planned merger with Zash Global Media and Entertainment Corp. The latter was co-founded by Ted Farnsworth, who agreed earlier this year to settle a Federal Trade Commission complaint that he was personally involved in a scheme to block movie-goers at his old company from using their passes as cash ran short.

None of this has fazed investors in Vinco, which soared as mentions of the stock lit up the social-media platforms favored by day traders. Twitter handles with hundreds of thousands of followers like @MrZackMorris and @realwillmeade have touted the company while its mentions on StockTwits rival AMC Entertainment Holdings Inc.

“As with all of these things, the finer details are never brought to light,” said Sam Masters, a 26-year-old pensions consultant in Bristol, U.K., who has continued buying Vinco. “There’s risks involved, but I’m comfortable with them.”

Farnsworth’s latest endeavor centers on an aspiring rival to ByteDance Ltd.’s TikTok app. His privately held Zash agreed in February to buy a controlling stake in video-sharing service Lomotif and merge with publicly traded Vinco. The surge in its stock values Bethlehem, Pennsylvania-based Vinco, which had 2020 revenue of less than $16 million, at about $525 million.

That’s been the story for meme mania this year, where individual investors band together to push prices higher and deliver losses to short-sellers betting against the stocks. GameStop Corp. and AMC have become poster children of the phenomenon, with Vinco and Support.com Inc. among more recent favorites.

“We totally embrace them,” Farnsworth, Zash’s chairman, said in a telephone interview. He’ll be the combined company’s largest shareholder and chairman. “The Reddit generation, or whatever you want to call it, they understand where we’re going and they understand the concepts.”

Locked Accounts

MoviePass parent Helios & Matheson also captivated day traders with a 1,000% surge in 2017 before fizzling out. The service promised theater-goers they could see a movie a day for just $10 a month. But cash quickly dwindled in 2018, and according to an FTC statement, MoviePass officials including Farnsworth sought to “prevent subscribers from using the service as advertised.”

Tactics included disrupting passwords to lock members out of their accounts, the FTC said, and the executives “knew their scheme was deceptive and harmful to consumers.” The service went bankrupt in January 2020.

Under the FTC accord, MoviePass, its parent company Helios and Matheson Analytics Inc., as well as Farnsworth and another former executive, would be barred from misrepresenting their business and data security practices.

A representative for Zash and Farnsworth declined to comment, and referred to the pending settlement; he didn’t admit any wrongdoing. Vinco, which didn’t respond to messages, is a separate company and wasn’t involved in the case.

Reddit Route

Farnsworth’s move to welcome younger, amateur investors mirrors AMC’s connection to the movie theater’s cult-like following. AMC’s chief executive, Adam Aron, has been a cheerleader for Reddit traders and regularly tweets about the so-called “apes.” (His company was also an ardent opponent of MoviePass.) GameStop’s Ryan Cohen gave a shout-out to Reddit investors at its June annual meeting.

“It’s like lottery tickets — you hear about the guys who earn money and because the human brain isn’t very good at handling, you think that you could be that person,” said Anne Stevenson-Yang, co-founder of J Capital Research. “Let’s be real, the market has not cared about fundamentals for a decade now.”

As retail investors have driven other meme stocks to stratospheric valuations, companies like GameStop and AMC have capitalized by selling shares. Farnsworth downplayed that possibility, saying Zash holds about $90 million in cash.

“The only thing we would raise any money for is potential acquisitions,” he said. “If we see a certain acquisition, we could do it as debt; we’re not going to necessarily do it as equity.”

Analysts have said surges in stock touts and retail buying could mean investors are betting on a short squeeze. Almost a fifth of Vinco shares available for trading are sold short, according to analytics company S3 Partners. However, the low amount of shares shorted compared with a recent trading surge implies a squeeze could have minimal impact, S3’s Ihor Dusaniwsky wrote in a report.

A proxy detailing the tie-up should come out within the next several days, Farnsworth said, adding that Lomotif’s monthly active users more than doubled in recent months to about 30 million.

Vinco rallied in April when it launched an entertainment-related platform to join the rush for sales of non-fungible tokens, or NFTs. Vinco’s subsidiary, Emmersive Entertainment, released rapper and Emmersive equity holder Tory Lanez’s new album as an NFT.

More stories like this are available on bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2021 Bloomberg L.P.