What’s Chris Wood’s 2,000% “SuperDisruptor” Born from a March 30 Merger?

by Travis Johnson, Stock Gumshoe | March 18, 2020 3:24 pm

I’ve been knocked out by a non-coronavirus[1] illness for the past couple days, and I have to tell you, that’s probably the best thing that could have happened for my sanity — watching the stock tickers fly by and freaking out at the constant stream of COVID-19 news is not the best way to keep a level head right now. Maybe my 36 hours of painful meditation as I hugged the toilet bowl was a blessing in disguise.

Too much information? Sorry, let’s get on to the topic du jour — despite the panic, despite the market’s crash, there are still folks trying to sell us their money-making ideas, and God bless them for it… this one is from Chris Wood[2], and he’s selling his “Project 5X” service by dangling the bait of his “free” (with subscription) report, “The Tiny Media Superdisruptor that Could Hand You 2,000% Profits in 2020.”

So that’s what we’ll be looking into today — what is this little Superdisruptor stock?

And no, it’s probably not going to be a shocking surprise to those of you who’ve already done some digging — we had a few readers post likely solutions in our discussion areas on the site over the past few days, and most of them were right… but that’s OK, I’ll look into it anyway and see what I find.

The ad, which was initially for a “urgent briefing” on March 16 but is now being circulated as a rerun, starts out like this:

“This tiny stock has locked down the “missing link” in America’s hottest tech (NOT 5G). A 2,000% profit windfall is coming… and $10 is all you need to get in before March 30 trigger date.”

It won’t surprise you that numbers Chris Wood collected in the days before his presentation on Monday are now a bit out of date — with the crash in stock prices you could theoretically say now that “$5 is all you need” to get in, though that, of course, is for a single share of stock. And while it’s nice to get huge gains, the initial investment matters — even if the headlines from the ad turn out to be prescient, and you eventually get 2,000% returns from this company, starting out with $5 would not do you much good. Turning $5 into $105 isn’t likely to be life-changing for someone who’s considering ponying up $2,597 for a newsletter subscription.

Public Service Announcement here, by the way: When you consider subscribing to research and advisory services, make sure to think of the cost in relation to your portfolio size — that will help put it in context for you, kind of like the way we think about management fees for mutual funds[3]. If you’re considering investing $200,000 in small-cap “disruptive” ideas, then perhaps spending $2,597 a year is rational for a service that can guide you to those ideas, assuming you like the service… if you’re thinking of investing $20,000 in those kinds of stocks, then that money represents more than 10% of your investment and that’s an absurdly high “fee” to pay for research.

The spiel from wood here is that there’s a “urgent, game-changing tech announcement” tied to a SEC document that he “waited 8 years to get his hands on.” Here’s another little taste:

“… SEC document #17d8k.

“This document contains an urgent, game-changing tech announcement.

“One that confirms the single greatest moneymaking event I’ve seen in my career is here.

“A small-cap stock is set to soar 2,000%.

“This new opportunity has nothing to do with 5G… and is in fact FAR more urgent than 5G.

“Within 12 months, this $10 stock could turn a tiny stake into an entire nest egg.

“This is much bigger than when I recommended Amazon and Google nearly a decade ago…”

And apparently, though this was disclosed in an SEC filing so we all can know about it, this is somehow “secret”…

“To 99.99% of people, what I’m about to tell you is a complete secret.

“Because the name of the company is literally confidential.

“No, I’m not talking about an IPO[4] or a private company.

“It’s a tiny stock that trades on the NYSE… whose name has not been disclosed publicly.”

What? Disclosed by who? There’s no such thing as a “secret” company without a name. That just sounds dumb, but we’ll let it pass for now — what else are we told about this “superdisruptor?”

This is all about “streaming” and the move of video content from traditional cable television to streaming services, and the pitch is basically that if you missed out on Roku, The Trade Desk and Netflix, well, this is your next chance.

Why is that? More from Wood:

“this document tells of a merger between two tiny companies.

“To create an entirely new type of streaming stock.

“This company will form what I call the ‘missing link’ in streaming.”

So this is largely a pitch about streaming being the next huge advertising market to surge (after Cable TV in the 80s and 90s and the Internet in the 2000s)… more from the ad:

“Hundreds of millions of “eyeballs” have moved to streaming…

“But almost all the television advertising dollars are still stuck with “traditional” cable TV!

“In fact, according to Adweek, just $6.9 billion was spent on streaming advertising in 2019…

“Compared to $70 billion for cable TV advertising! ….

“Streaming advertising is about to explode starting March 30….

“Understand: There’s only one reason this hasn’t happened already.

“Because the technology for streaming ads did not exist.”

And then back to that SEC filing…

“It details how two tiny, disruptive “ad tech” companies are merging…

“To create the new type of streaming stock I’ve been telling you about.

“Its name is confidential.

“It’s being kept a secret from the public.

“But it is THE “missing link” in streaming.

“It’s the reason you’re about to see new commercials pop up on televisions all over the world.”

OK, so yes, we can stop churning through the ad now — yes, we can confirm what several of you were guessing, that this is a pitch for the merger between The Rubicon Project (RUBI)[5] and Telaria (TLRA), two ad-tech companies. And yes, I guess the name is technically “secret” because they haven’t announced what name the combined company will use… though Rubicon’s CEO will be in charge and RUBI shareholders will end up with about 53% ownership, with RUBI the surviving ticker, so they might just keep the Rubicon name. The merger was announced late last year [6]and so far has moved pretty smoothly through approvals

This is, really, an attempt to build a publisher-side ad network and platform that can match what The Trade Desk is doing on the ad agency side — creating a compelling and streamlined data-heavy service for ad sellers like The Trade Desk has done for ad buyers and, like The Trade Desk, trying to capitalize on the surge in demand for streaming video ads. They also similarly focus on their independence, and that has been a big deal for advertisers and publishers who are wary of being too beholden to the dominant Facebook/Alphabet advertising duopoly.

Thanks to this major market disruption, however, I wouldn’t worry too much about being “too late” to buy the stock — RUBI and TLRA have both fallen dramatically in the past few weeks, and it would be surprising if the actual consummation of the merger caused any dramatic re-rating of the stock. All stocks are falling out of fear right now, and it’s hard to predict when individual names will again be assessed based on their individual merits.

And, really, it’s not the consummation of a merger that usually makes a stock jump — it’s the annoucnement of a merger, or, in cases like Sprint/T-Mobile, the change in sentiment about whether regulators will approve a merger. Most mergers and pretty noncontroversial and go through just as planned, and the big pop, if there is one, comes right away when the merger is announced and investors have a chance to get excited about the synergies or growth potential of the combined company. RUBI shares did jump about 20% on the merger news when it was announced in late December and Telaria jumped slightly more. Both went on to rise about 80% over the next couple months into the February peak, but have since given up all those gains and more in the widespread coronavirus selling.

March 30 is a real date, that’s the planned day for the shareholder vote by both Telaria and The Rubicon Project… and they expect to close very quickly after that, in early April. I suppose this might be delayed by the coronavirus response, since everything else has been, but I did notice that Telaria is offering a “virtual meeting” for shareholders and, given that most shareholder votes are collected beforehand and read before empty rooms anyway, it will probably go through fairly soon. And I don’t see any reason why shareholders would vote against it, I haven’t seen any big revolt among shareholders of either company.

RUBI has been quite active in the past couple years, buying up other ad-tech companies to make up for the fact that they missed some big shifts in advertising four or five years ago and got hit with some huge revenue declines from 2016-2018 or so before beginning to recover last year. They are clearly betting big on video, both web video and streaming video services, and that’s where most of their growth has come from recently. How they’ll shake up, I don’t know — Telaria and Rubicon are both essentially breaking even, making a small profit but focusing on growing revenue, and they are operating in an extremely competitive ad tech market so they are no doubt aware that the race is to build scale… becoming the standard exchange and platform that ad sellers (and buyers) like and use is paramount, and they’re clearly hoping that this merger, combining Telaria’s yield-optimization software for publishers with Rubicon’s large exchange network, will give them a chance to become leaders in connected TV as that segment grows. RUBI had a pretty solid report last quarter and TLRA had a weak one, with revenue flat year over year, but their connected TV segment, the part that Rubicon cares about but is currently generating only about half of Telaria’s revenue, continued to do very well and grew about 100% over last year.

It’s tempting to think about speculating here, because they do have a pretty established user base, and Telaria does give them a little jump start on building a connected TV business, but I would imagine it will take some time to play out. Neither of these companies had built up enough scale to make them a star, so they didn’t trade at the nosebleed valuations of a lot of other small tech names, but that didn’t protect them from falling dramatically this month. The deal is an all-stock merger, though technically it’s Rubicon buying Telaria — each Telaria share will be converted into 1.082 shares of RUBI, so the shares have been trading since the announcement as if investors expect the deal to be completed. If you’re interested in speculating, I’d just do the math and buy whichever side of the deal is slightly cheaper at that moment (ie, if TLRA is trading at more than 1.08X RUBI, buy RUBI… if less, buy TLRA — as of this moment, TLRA is trading at a slight premium to the deal, but it’s only about a 2% premium and stocks are moving so wildly in the selloff that it could go either way in any given moment).

So, of course, there’s also that current market uncertainty and the coronavirus recession to fret about when it comes to any stock. Advertising should be an evergreen business, and should even do quite well in downturns because companies must keep marketing to keep their revenue from falling too much… but there are also severe hiccups likely to come to all of the major advertising-related companies in the next few months, at least, if only because travel and tourism advertising and “new release” film advertising make up such a huge part of the advertising world, and those businesses have hit the “pause” button. Everyone hopes that these businesses can come back strong after some time on mothballs, but we have no real sense of how long a time that will be. Maybe we’ll all be getting on airplanes and going out to the movies again by June or July, or earlier (though much earlier is a little hard to imagine at this point), and those companies will recover quickly, or maybe it will be considerably longer and this will be a lost year for those businesses, with bankruptcies or retrenching for survival being the news for the rest of 2020… I certainly don’t know.

But there is some comfort in being a service provider, with a good cash balance, during a time of uncertainty, so when the market decides to stop worrying about the present and start planning for the future, it’s possible that RUBI shares will look pretty appealing — the combined company right now is trading at about 2.5X sales, with a cash cushion of about $150 million (that’s more than 20% of the combined $540 million market cap). Their results will almost certainly be worse than they were anticipating when this merger was announced last fall, but they won’t be as impacted by the coronavirus shutdown as the results of Expedia or Delta Air Lines or AMC Entertainment or Disney. Don’t expect 2,000% returns on March 30, this is neither urgent nor a secret, but those who can stomach buying anything these days might find a worthwhile possibility here.

Disclosure: I own shares of Alphabet, The Trade Desk and Disney among the stocks mentioned above. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.

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