Given the current stock promotion, excessive promotional press releases, deceptive business practices and two top executives of LiveDeal that could arguably be considered career stock operators; lining their pockets for years while moving from one failing public entity to the next, we believe that, relative to all other small-cap Nasdaq stocks, LiveDeal Inc. (NASDAQ:LIVE) is more likely to be investigated by the SEC. While there is no hard evidence of fraud, we have compiled enough circumstantial evidence and red flags to beg the question as to the legitimacy of this company and their motives for running this public company. 3D Analytics has completed a thorough review of LIVE and determined there are 5 main reasons why LIVE is a SELL.
LiveDeal Inc. became a public entity after it was acquired by YP Corporation in June 2007. YP Corp. owns and operates YP.com. Besides having been the target of fraud allegations by StockLemon.com, YP Corp. entered into a settlement agreement with 34 state attorneys general related to deceptive business practices and its controversial marketing practices.
LiveDeal provides local customer-acquisition services for small businesses. Through its two primary, wholly owned subsidiaries (Velocity Marketing Concepts Inc. and Local Marketing Experts Inc.), LiveDeal offers an affordable way for businesses to extend their marketing reach to local, relevant customers through the Internet, with a focus on marketing solutions for mobile devices. On Sept. 19, 2013, LiveDeal announced the launch of LiveDeal.com, a unique, real-time "deal engine" connecting merchants with consumers. On May 6, 2014, LiveDeal announced the acquisition of DealTicker.com, an online platform company that offers discounted products and services in the U.S. and Canada. DealTicker.com was caught delivering fake name-brand products and has received poor reports from ScamBook.com, BBB.org and RipOffReport.com.
Reason 1: A peer-group comparison shows LIVE is overvalued by more than 50 percent
LIVE is significantly overvalued in comparison to other restaurant coupon and marketing companies. LIVE has the highest P/S with the lowest growth, making it a less attractive investment opportunity than its peers.
By averaging the P/S ratios of LIVE peers, we conclude LIVE should be valued at $2 per share, which is down more than 50 percent from current levels.
Reason 2: Over the past five years, LIVE has been unable to grow revenues and sustain a profitable business
LIVE shows, both financially and fundamentally, that it cannot become a profitable business. The company's revenues have decreased over the past five years, and earnings per share show no sign of going positive. In the past five years, with the company in a cost-cutting mode, revenues have decreased steadily, and retooling EPS also has decreased and remains in the red. LIVE is a failing company struggling to stay afloat. In a saturated market, it shows no signs of being successful.
Reason 3: LIVE has recently opened an at-the-market offering to sell up to 10 million shares; a 75 percent increase in shares outstanding if all shares are sold
On May 20, 2014, LIVE filed a prospectus supplement, which disclosed that the company engaged Chardan Capital Markets LLC to act as agent in an at-the-market offering of up to 10,000,000 shares of common stock. This enables LIVE to sell, at such times as it deems appropriate, shares of common stock in the open market through Chardan acting as agent. Before the offering, LIVE had 13,853,495 shares outstanding. If all 10 million shares are sold, shares outstanding will increase around 75 percent which would value LIVE around $.50 per share using the P/S peer group comparison method.
Reason 4: LiveDeal.com is not a leading daily-deal and restaurant-coupon company
LIVE claims to be a leading daily-deal and restaurant-coupon company. While performing a Google search of both of these topics, I was able to click through more than 15 pages of results without finding LiveDeal.com. A firm that claims to be one of the leading companies in its industry should be easily located by performing a basic Google search of that industry.
When compared to its peers by Alexa.com's ranking system, LiveDeal.com performs poorly. LiveDeal.com ranks 75,475th in the U.S. when the rankings are calculated using a combination of daily visitors and page views (PV) over the past month. In comparison, competitors like Groupon Inc. (NASDAQ:GRPN), Coupons.com Inc. (NASDAQ:COUP), RetailMeNot Inc. (NASDAQ:SALE) and Yelp Inc. (NYSE:YELP) all rank in the top 200. Not only is LiveDeal.com infrequently visited, but its metrics for view engagement rank lowest among the 4 competitors which have virtually the same business model. LiveDeal.com has more than a 72-percent bounce rate for visitors to its website, which means 72 percent of visitors view only one page on the site before leaving. Another metric displaying LiveDeal.com's poor performance is the time each visitor spends on the website whenever a potential customer actually does visit. Those potential customers spend about 1 minute, 33 seconds on LiveDeal.com. Based on these metrics, LiveDeal.com appears to be an unpopular company in the increasingly cramped daily-deals market.
Reason 5: LIVE is being promoted via mailers, emails, and radio ads and two top executives of LIVE were involved in past pump-and-dump scams
LIVE is being promoted by an unnamed third-party shareholder which paid a large sum of money to tout the stock in brochures mailed through the country, nefarious penny-stock newsletters and even radio ads. The only conclusion we can draw from these promotional activities is that a large shareholder needs to create artificial demand for the stock so that shareholder can liquidate his or her position. While stock promotion technically is legal, it certainly is not an activity in which profitable, legitimate public companies engage. This development raised enough of a red flag that our team started digging more deeply. We looked into the backgrounds of the company's corporate executives and of the company itself. We have contacted LiveDeal and Jon Isaac said "we have heard of the campaigns but I can confirm those are not company sponsored."
Jon Isaac is the President and CEO at LIVE and head of Isaac Capital Group. On Dec. 12, 2011, Isaac Capital Group acquired a stake in LIVE. As reported in the company's latest 10-K, LIVE has issued convertible notes to Isaac Capital Group over the past few years, making Jon Isaac and Isaac Capital Group one of LiveDeal's largest stockholders. Over the past few years, Jon Isaac and Isaac Capital Group also have been large stockholders of two pump-and-dumps using similar convertible-note agreements, and LIVE could be next.
VelaTel Global Communications, Inc. (OTCPK:VELA), formerly known as China Tel Group (CHTL), is a pump-and-dump scheme in which convertible notes were issued to Isaac Capital Group, making it a large stockholder. VELA now trades at less than .01 per share.
Like LIVE, Seven Arts Entertainment Inc. (OTCPK:SAPX) was a promoted, Nasdaq-listed stock in which Jon Isaac was a large stockholder, and Isaac Capital Group also held convertible notes. SAPX recently was named on FBI.gov as a fraudulent film tax-credit scheme. SAPX now trades at less than .01 per share.
With both VELA and SAPX trading below .01 per share, we are concerned that LIVE could be next.
Tim Matula is the senior vice president at LIVE and has been involved in multiple past pump-and-dump scams, leading us to believe he could be behind part of the current stock promotion of LIVE. He also is named as a defendant in a class-action lawsuit for violations of federal securities laws.
Given this company's history of deceptive practices and promotional activities, its declining revenues and the $10 million at-the-market stock offering, investors are likely to get burned and should sell LIVE before it is too late. We reiterate our sell rating on LIVE and ask that individual investors draw their own conclusions because LIVE eventually could fall over 90 percent from current levels.
Disclosure: I am short LIVE. 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.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.