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Groove Portfolio Focus Stock #2
Remark Media's Rapidly Evolving Personal Finance Community Could Benefit Materially From Groove Investor's Collaborative Consumption Impact and Remark's Stake in Sharecare Represents Enormous Potential Upside
Remark Media (NASDAQ: MARK), formerly known as HSW International, is a global digital media company focused on developing social media businesses that incorporate relevant, high quality content. The Company develops and operates next-generation web publishing platforms combining traditional web publishing with social media, revolutionizing the way people search and exchange information over the Internet. The company was a co-founder of Sharecare, developer of the Sharecare technology platform and one of the most significant contributors of intellectual capital to the process of creating Sharecare
Remark Media's primary business includes the wholly owned brands and websites IRS.com, Banks.com, Dimespring.com and Filelater.com. Remark Media's assets can be broken down into three groups. Below we discuss each and offer some historical perspective:
1) How Stuff Works International - The company's original business in China and Brazil (Bowenwang.com.cn) and ComoTudoFunciona (hsw.com.br), which provide readers in China and Brazil with thousands of articles about how the world around them works, serving as destinations for credible, easy-to-understand reference information. Remark Media is the exclusive digital publisher in the rapidly growing markets of China and Brazil for translated content from HowStuffWorks.com, a subsidiary of Discovery Communications. When the original How Stuff Works International was formed, this was the core asset of the company that led to a $75m+ market cap as investors excitement over investing in China led many to push the shares beyond (in hindsight) what was rational based on the company's assets and potential to drive revenue through these websites.
2) Sharecare.com Stake - In 2009, the Company co-founded Sharecare, a U.S.-based venture between: Dr. Mehmet Oz, a leading cardiac surgeon, health expert and host of “The Dr. Oz Show”; HARPO Productions, producer of “The Oprah Winfrey Show”; Discovery Communications, the world’s largest non-fiction media company; Jeff Arnold, WebMD founder and Discovery Communications’ former Chief of Global Digital Strategy; Sony Pictures Television; and Remark Media. Sharecare was created to build a web-based platform that simplifies the search for health and wellness information by organizing a vast array of health-related questions and providing multiple answers from experts, organizations, publishers, and caregivers representing various points of view. As a part of the transactions, the Company received an equity stake in Sharecare, sold substantially all of the assets of its DailyStrength subsidiary to Sharecare, agreed to provide management and website development services to Sharecare, and received a license to use Sharecare’s web platform for its own businesses. Remark currently owns 10.9% of Sharecare.
While Sharecare remains privately held, we believe that the company may go public over the next 12-18 months. Given the scarcity of information about Sharecare's financial performance, it is difficult to determine what kind of valuation we might see if the company went public. We know that the last disclosed private equity placement of sharecare took place in June 2011 and the valuation at that time would have been appoximately $233m. In the nearly two years since that time, we know that revenue has grown substantially (more than 100% YOY revenue growth indicated in filing detailing Sharecare's Q2 2012 performance) and the company lept into the top 10 in health care traffic following its acquisition of RealAge.com. Given the high profile media status of Sharecare's top shareholders and the growth the company has achieved since that $233m valuation two years ago, we believe it likely that Sharecare could achieve a valuation substantially higher than that if they pursue a public offering. Given that Remark's current stake in Sharecare would be valued in excess of $25 million (vs. the current market cap of $11.5m) based on Sharecare's 2011 valuation, we believe that investors will soon begin to recognize the latent value here and any additional funding rounds, reports of Sharecare growth or the beginnings of that public offering process could trigger a rapid flow of capital into Remark shares.
3) Dimespring.com - the five month old financial version of Sharecare.com - the company essentially built from scratch what is Sharecare today and they are now using the same technology and approach to build a similar business that focuses on consumers seeking content related to financial well being. To accelerate this process and bring in complimentary assets, Remark acquired Banks.com last year and all of its domains including IRS.com, Banks.com and FileLater.com. Additionally, the company recently struck a deal for an advertising and content partnership with TheStreet.com and we believe the quarter that ended last week represents the first quarter of this partnership. While we have no illusion that these sites or this partnership will produce millions in revenue in its first quarter of existence, we do believe that the company is doing what it did with Sharecare, in methodically building out a community of web properties that will "..brands incite consumers to discover, share and be part of the conversation on topics and areas of interests that matter most to them" like their financial well being. And while we recognize that it may take two - three years to build out a significant presence a la Sharecare, we believe the pieces are already in place and that process has already begun (Click here to visit Dimespring.com). Additionally, while we recognize that past performance (build out of the highly successful Sharecare platform) does not guarantee future results, we believe that Dimespring has a couple of advantages over Sharecare -
A) Dimespring will have the big advantage of having several very highly trafficked websites (IRS.com, Banks.com, Filelater.com) that can be used to help drive traffic to Dimespring in addition to being additional significant providers of ad revenue for the Remark business, which will likely allow Dimespring to scale more rapidly than Sharecare. To get an idea of the traffic and likely value that IRS.com can deliver for Dimespring, consider that IRS.com (the domain only, no business attached) was acquired by Intersearch in 2007 for $11.1m.
B) Higher ad rates for financial content than health care - the average ad rates paid for pay per click ads (and per impression ads) in the financial sector are substantially higher than ad click rates in many other areas including health care. Thus, Dimespring and the other financial sites owned by Remark should benefit by generating higher revenue for any given level of clicks or impressions than would be expected for Sharecare.
Thus, as Remark builds out what we believe has the potential to be "The Sharecare of Personal Finance", we believe the company already has several advantages that could allow it to scale revenue and achieve success in a shorter time frame than Sharecare.
In summary, Remark Media currently has a market cap of $11.7m (as of yesterday's close at $1.65). Asset group #1 once traded at a multiple 6x that valuation when it was a stand alone company called How Stuff Works International (HSWI). We believe that Asset Group #2 (Sharecare stake) is currently worth something more than $25m and though it is difficult to quantify until the next release of information related to its performance, we believe that figure could be substantially higher. Asset Group #3 with the Dimespring community, IRS.com etc. has the potential to be worth substantially more than groups #1 and #2 over the next few years, but we also note that the IRS.com domain alone was valued at about the same level the marketplace is currently valuing the entire Remark Media enterprise (=/- $11m).
Bottom line - Remark should trade much higher than current levels based on the value of the three assset groups listed above. Remark traded 5x higher this time last year, but has fallen completely off investor's radar screens and as is often the case, the lack of attention or a catalyst to drive the stock has resulted in its falling to ridiculously low levels. We believe there are several catalysts on the horizon that could push the shares much higher including but not limited to - 1) An updated Sharecare valuation being made public, either by another funding round or more likely, the announcement of the company's intent to issue an initial public offering 2) investor recognition of the emergence of Dimespring.com as "the Sharecare of finance" 3) any additional exposure that allows investors to see the potential value of numbers 1 - 3 above.