The most interesting and mischievous stock I've followed in my short investing career is BroadVision (BVSN). Every new trading day BVSN may move up or down as much as 40% on huge volume with large intraday reversals. BVSN's large volume increases and crazy price volatility is a result of a large and popular stock promotion. BVSN has been the highlighted stock for the popular political newsletter -- The National Association of Inflation (NIA). Since early December 2011, The NIA has been aggressively promoting BVSN as their strongest stock recommendation. The purpose of this article will be to critically analyze the NIA's investment pitch for BVSN and present factual information about the company. First, let's briefly learn about the National Inflation Association, their newsletter and also the company they are promoting - BroadVision Inc.
The National Inflation Association or NIA is an organization dedicated to "Preparing Americans for Hyperinflation". The NIA has built a strong following with popular articles and videos about the United State's current debt issues and potential currency crisis. Honestly, I personally believe some of the NIA's work has a lot of merit to it. I initially found the NIA newsletter almost a year ago due to my political interests in Ron Paul, whom the NIA is a big supporter of. The NIA's newsletter typically recommends micro gold and silver stocks to help Americans hedge against the loss of value in the US dollar.
BroadVision does not fall into the gold and silver sector and has little to do with inflation. Regardless, BroadVision is an online commerce and social networking solution company based in Redwood, Calif. BVSN's stock has gone parabolic in 2012 rising from $11.24 per share to $36.99 per share (as of 2/25/2012) for a fast and ample 240% gain YTD. The 178M market-cap company which employees 160 people, generates licensing and subscription revenue from primarily 4 e-commerce and social networking solutions to a handful companies.
Getting back to the relationship between BVSN and the NIA, it is clear the NIA's stock recommendations have been influencing the stock. The first BVSN recommendation was sent on December 5th of 2011, since then the NIA has been sending BVSN pumps on a daily basis. Volume for BVSN was almost non-existent before December of 2011 and look at its recent price action.
The volume surges clearly demonstrate the NIA has been manipulating the price action on BVSN. From late last year till now there has been no company news, no earnings surprises, or new product developments. Look what the company had to say in its most recent earnings release.
"In addition, the Company noted that, during the past few weeks, there has been an unusually large amount of trading activity and price movement in its stock. The company is not aware of any corporate development that is believes would explain this unusual activity"
So the company either honestly is not aware of The NIA's newsletter or is not afraid of an SEC investigation. Regardless, let's look at BVSN's fundamentals, financials and also evaluate the NIA's top BroadVision claims and decide for ourselves if a 240% YTD rise is justified.
The first disconcerting thing about the NIA's research is how they neglect to mention anything about BroadVision's past, which is less than desirable. The company has had decreasing revenue figures for 11 years in a row. That's not a typo. the company has been losing sales for more than a decade. BVSN lost 1.8 million last quarter and since the company's inception has an accumulated deficit of $1.2 billion. BroadVision in its lifetime of operations has lost seven times more money than its current market cap. In fact, after the doc.com bust, BVSN was actually delisted for a short period of time. In 2005, when BroadVision was struggling with liquidity issues they almost sold the company at 35% discount to Vector Capitol at just $0.84 cents per share, the deal however fell through. In addition to decreasing revenue and consistent insolvency, BroadVision has manipulated its stock price and the number of shares outstanding four different times.
- 3:1 split October 26, 1999
- 3:1 split March 14, 2000
- 1:9 reverse split July 30, 2002
- 1:25 reverse split October 24, 2008
Without these splits and reverse splits BroadVision would stand at just $1.50 per share today. The aggressive 1:9 and 1:25 reverse splits are responsible for the company's small float which has attracted short term momentum traders whom have contributed to the stock's recent volatility and volume.
BroadVision's past and recent poor revenue is never mentioned in the NIA's newsletter and when one recognizes BroadVision's poor sales it automatically refutes the NIA's main stock thesis, which is, that compared to other social network stocks BVSN is significantly undervalued. In every NIA newsletter, they compare BroadVision and its newest product, Clearvale, to other social networking stocks like JIVE, SABA, Lithium.com and Newsgator.com. The problem with this kind of evaluation is that these other stocks all have impressive revenue growth, some as high as 70% year or year, where BroadVision has declining revenue of almost 20% year over year. BroadVision is currently not growing and certainly not to the tune of companies like JIVE and Lithium. Consequently, BVSN does not deserve the same multiples as JIVE, SABA and Lithium.
The NIA's second most popular claim is its praise for BroadVision's newest social platform Clearvale, which they describe as a best of bread social network platform. This is hard to believe as Clearvale has been available to consumers for years and revenue continues to decline. Additionally, I cannot recognize one Clearvale customer, you can view them here. When comparing customers of BroadVision to those of Jive Software or Lithium there is no contest between who the more reputable and capitalized brands prefer. If Clearvale was truly an innovative product why would it lack the impressive growth that other social networking stocks are seeing? Why does Clearvale also lack the names and business of large reputable companies that other social networking solutions are attracting?
There is another recent development in the NIA's news letter that should bring caution to any long term BVSN investor. In every newsletter the NIA states this disclaimer at the end of their recommendation.
Disclaimer: NIA currently owns 155,000 shares of BVSN. NIA intends to sell these shares at some point in the future and can sell them at any time. NIA reserves the right to accumulate more shares of BVSN at any time. NIA's co-founders have also been referred business in the past from somebody who has filed as a large BVSN shareholder. Past performance is not an indicator of future returns.
The above disclaimer was published on Feb 13th. To my surprise after this email, the NIA did not send out a newsletter for a full week. Before Feb 13th they were sending out BVSN emails on a daily basis, sometimes twice in the same 24 hours. A week later on Feb 20th The NIA's started its BVSN promotion again but this time disclaimer had changed.
Disclaimer: NIA currently owns 149,264 shares of OPTT and 107,200 shares of BVSN. NIA intends to sell its shares of both companies and can sell them at any time. NIA reserves the right to accumulate more shares of either company at any time. NIA's co-founders have also been referred business in the past from somebody who has filed as a large BVSN shareholder. Past performance is not an indicator of future returns.
Between these two dates The NIA sold 47,800 shares or 1/3 of their BroadVision position. With a cost basis of roughly $9.00 per share The NIA made an estimated $1.2 million in BroadVision profits. The NIA continues to promote BVSN but has sold 1/3 of their position. With almost a 400% gain I would assume the NIA will continue to sell its shares sooner than later. Investors also need to recognize that the NIA may have a biased perspective on BVSN as they admit to having business relations with a large BroadVision shareholder.
When one first reads the NIA's newsletter it is easy to be excited and anxious about owning BVSN as an investment. When spun the right way a small social networking stock with a new product and cash on the balance sheet can seem attractive to the average retail investor, but please use caution. People underestimate the power of momentum short term traders and stock promotions. Long term investors who choose stock promotions as a long term investment have a tendency to be left holding the bag.
In conclusion, it is my opinion that the NIA's newsletter and stock recommendation neglects critical facts about BroadVision and its poor growth and insolvency. BVSN is up 350% outperforming every other social network stock in 3 months while reporting one of the company's worst quarters in its history. The company has negative cash flow, negative revenue growth and negative ROE. BroadVision's Clearvale social network platform lacks the reputable partners and growth that other social network competitors are currently seeing. With decreasing revenue and stagnant Clearvale growth, I believe a three month 350% rise is unwarranted and believe BroadVision's true value is where it traded before the NIA's promotion, which would be roughly $10.00 per share. If you are considering BVSN for a long term investment please do extensive research beyond just the NIA's opinion. If considering shorting BVSN, there is a possibility that additional newsletter momentum, Facebook.com hype, short covering and forced buy-ins propel BSVN much higher.
Disclosure: I am short BVSN.