For those not familiar with how Synacor (SYNC) has been manipulated, the stock first came into prominence in early May 2012 when it was profiled by the National Inflation Association (NIA) newsletter. I had previously written about how the NIA had relentlessly pumped up SYNC over the period of many months and caused its stock price to run up to highs of around $18, before coming back down and causing millions of dollars in losses for NIA followers.
After hundreds of emails promoting SYNC, the NIA newsletter then moved on to promoting another stock, Concurrent Computer (CCUR). SYNC did what basically any pump-and-dump stock does once the promoter stops hyping it up: Its volume dropped to almost nothing, and its price fell even lower to below $3 (representing a roughly 80% loss for those who bought it at the highs when NIA was promoting it). But after checking the largest percentage gainers for May 1, 2013, I was surprised to see SYNC on the list, having gone up 22% on the day and seeing a surge in volume all throughout the trading day (over 5 million shares).
The Catalyst for SYNC's Rise
SYNC was a company that appeared to be sinking further and further, as its management had forecast revenues in 2013 far below analyst expectations and it failed to announce any major deals. But on May 1, SYNC announced news that investors obviously found very exciting, saying it has expanded its relationship with Verizon (VZ) to "offer the company's nearly 5 million FiOS TV subscribers access to TV shows and movies from one online destination." With SYNC's "startpages," users can access content with just one log in and from one location, rather than having to search across multiple websites and channels. An example of a SYNC startpage can already been seen on Verizon's website. Users can search for a television show and have multiple results returned from multiple networks. Synacor VP and General Manager Michael Bishara commented as follows:
Consumers want access to their favorite TV shows and movies all in one place versus endlessly searching across every channel and show website, app or individual OTT offering. Whether it's 'Game of Thrones,' 'Girls,' or even a can't miss episode of 'Real Housewives,' we want Verizon FiOS customers to find it easily on one site and with only one log in. With our customized solutions, handling programmer integrations, authentication and consumer-friendly single sign-on, we're delighted to be working with Verizon and ultimately increasing end-consumer engagement.
The press release regarding SYNC's deal with Verizon does not state any dollar amounts, and I can only make guesses as to what kind of revenue SYNC will be earning from Verizon in future. However, I am inclined to believe (though I could be wrong) that SYNC's intraday moves on the day this news was released were excessive. SYNC has 27,300,000 outstanding shares, and at the high of the day on May 1 it rose to over $4 after closing the previous day at below $3. That represented an increased valuation of around $30 million, merely for providing a solution that allows Verizon subscribers to more easily search for TV shows.
Even at SYNC's current price in the mid-$3s, it represents an increased valuation of around $15 million. History has shown that small-cap stocks with low volume that announce a deal with a huge company (even if it's for something fairly minor) can run up massively due to overexcited investors jumping in without properly understanding the news. I have to wonder if that's the case here.
The Real Test for SYNC: Earnings
SYNC will announce its Q1 2013 results on May 7, and that will give investors a better idea of the real health of this company. I do not expect the earnings to be encouraging, as SYNC management previously gave fairly low estimates. Also, any revenue earned from SYNC's new deal with Verizon will, of course, not be reported (Q1 represents only January to March). It will still be several months before SYNC's new revenue from Verizon will be reported in new income statements, and we will be able to see just how meaningful this new deal is.