· Ebix (NASDAQ:EBIX) shares are worth no more than $8.00/share - Ebix's valuation at 1x revenue is $5.45/share, valuation at 12x normalized earnings (at a 33% tax rate) is $9.72/share, and its tangible book value/share is negative. A simple average of these estimates gets you below $8.00/share. Note that these incorporate some very generous assumptions, given the accounting irregularities, regulatory event risk, flat/declining organic growth, tax risk, and other risks identified in our prior reports.
· Ebix shares are likely worthless - Ebix owes at least $80 million to creditors, has a negative net cash position, and potentially owes over $100 million to U.S. taxpayers (in back-taxes, penalties, and interest). This doesn't include additional costs related to the SEC investigation or class-action lawsuits. Given negative organic growth, it's unclear how Ebix will pay its creditors & taxpayers. Governments throughout the world are targeting institutions under suspicion of tax-related malfeasance. Ebix is the worst offender par excellence.
· Huge distraction for management - It's unclear how Ebix's management can successfully navigate its declining operations even as Ebix faces the trifecta of the IRS, SEC, and DOJ. Ebix will also have to stop violating Microsoft's intellectual property rights, which means additional software-related costs going forward.
· A criminal indictment would be unsurprising - Many Americans go to jail for allegations far less serious than the ones that Ebix, Robin Raina, and related parties face. It would not surprise us at all to see a criminal indictment, given Ebix's intentional misconduct.
· Goldman Sachs will likely be vindicated for walking away - We applaud Goldman Sachs for exercising prudent risk management, and walking away from this deal. We hope that the executives at Goldman who played key roles in rejecting this deal will be rewarded.
· Ebix and Robin Raina did not address our core concerns - Robin Raina claims that "the allegations in the class-action suits are without merit." He did not say that the allegations are false. Nor did Raina say that Gotham City Research's allegations are false.
· A CEO who lies about his charity's finances cannot be trusted, period - Robin Raina foundation's tax filings are inaccurate; he's never denied this. You should assume that there's something wrong here. Whenever Raina has ignored an allegation, it's ended up being true.
· True value investors will stay away from Ebix - There is no margin of safety against fraud, as famous value investors Benjamin Graham and Seth Klarman have taught. Klarman famously warned, "Beware of the value pretenders, those who buy stocks because they are down but not necessarily cheap."
Be fearful of what the regulators know - We have provided regulators with additional information that has yet to be publicly disseminated, and we will likely continue to aid in their efforts. Gotham City Research has no obligation to share our additional findings with the public. You should assume that its materiality equals, if not exceeds, what we've published so far. You should not assume Ebix's cash position is necessarily as they portray.