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VisionChina Media, Inc. (NASDAQ:VISN) provides advertising services in China. It operates out-of-home ad networks using real-time television broadcasting to deliver content and advertising mostly on mass transportation systems. The televisions -- which deliver news, stock quotes, weather as well as advertising for businesses -- are displayed mostly on subways, subway platforms and buses.

VISN is not widely followed by the Street and has a small float of less than 5 million shares. Although it is possible to borrow shares to short, it is not available by many brokerages. Because of the small float and some mania surrounding this bull market we are in, VISN has quickly gone from $2 to $30 within three months without any catalysts, news, or other developments. In my opinion, it will most likely will come all the way back down rather quickly, as fast as it went up.

VISN has moved an astounding 1140% from $2.5 to $31 per share in three months. Please note that VISN has stayed under $1 a share for much of the past two years, trading as low as 13 cents a share. VISN has never been profitable, losing money every year since its IPO five years ago.

Let's take a look at what recent developments have occurred to see if anything has sparked this rapid increase in share price. According to the most recent 6-K filing, showing earnings for the third quarter of 2013, in the Condensed Statements of Operations their total advertising revenue is $28.5 million and their advertising service cost is $21.5 million. There are also other expenses involved such as selling and marketing, which were $7.1 million, and general and administrative expenses of $2.5 million. In total, the company lost $3.7 million for the quarter.

Before we get into the other numbers, which show their revenues have been inconsistent and difficult to forecast, I would like to point out how quickly they are running out of cash. Since their IPO in late 2007, they had roughly $163 million in cash and cash equivalents. Currently they are down to $31 million in cash. According to their 20-F (the most recent annual report), they still have not settled a lawsuit with Digital Media Group, for which they lost an appeal and were ordered to pay $71 million in damages. This essentially will wipe out all of their cash and put them into bankruptcy. A secondary is almost certain to come.

But let's take a look at the other numbers to see if the business is growing. Total revenues for the past five years is (in thousands) were as follows:

  • 2008: 104,080
  • 2009: 120,686
  • 2010: 138,056
  • 2011: 181,194
  • 2012: 115,667

For 2013 so far, they reported revenues of $17.1 million, $26.7 million, and $28.5 million for the first, second, and third quarters, respectively. They estimate fourth-quarter revenues to be around $30 million, totaling around $102.3 million. The numbers do not show they are growing and there is little consistency and profitability in sight.

Let's quickly look in more detail at the numbers for their most recent quarter -- Q3 2013 -- compared to the same quarter a year ago in 2012:

  • 463 advertisers purchased ad time compared to 577 for the same quarter a year ago.
  • Sold an average of 7.95 advertising minutes per broadcasting hour compared to 7.31 advertising minutes for the same quarter a year ago.
  • Advertising revenue per broadcasting hour was 687 compared to 748 for the same quarter a year ago.
  • VISN total revenues were $28.5 million for Q3 2013 down 14% from 33.2 million in the third quarter of 2012.
  • They have cut expenses dramatically, though, perhaps because their cash on hand has hit a low of $30 million.
  • Selling and marketing expenses were $7.1 million, down from $9.9 million the same quarter a year ago.
  • General and administrative expenses were $2.5 million down 50% from $4.9 million in the third quarter a year ago.
  • Their "media cost" stayed almost the same at $17.5 million compared to $17.9 million for the same quarter a year ago, yet their revenues fell 14%.

In summary, this is a company that has not made money since inception and has not showed signs of sustained revenue growth. The cash on hand has gone from $160 million to $30 million in five years, and they still have a pending settlement with DMG that will wipe all that out.

Then the question arises as to how the stock price went from $2.5 to $31 in just three months with no real developments. There have been other examples of similar situations with stocks that are thinly traded and have small floats outstanding, which means it can easily be manipulated. VISN has a 4.64 million share float. In July, there were a few good examples of drastic moves in stocks with floats of less than 10 million shares outstanding. SPEX went from $4 a share to $27 in just a few days and came all the way back down within just a few days. STXS went from $1.21 to $10.85 in just a few days and also came back down. SR went from $3 a share to $16.75 and, yes, back down.

My guess is VISN can and probably will come all the way back down to $10, or possibly lower, as it had an average share price of $2 for the past two years. When something like VISN moves this drastically without any developments, I would strongly suggest investors stay away from it until the dust settles. As shown in the previous examples, it can and most likely will easily move back down.

Disclosure: I am short VISN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: VisionChina Media Went From $2 To $30 In 3 Months, So How Is It Running Out Of Cash?