It’s that time of year again, when most of us of are rummaging around in the bottom of the wardrobe to find the swimsuit that we haven’t taken out since the last holiday, and on realising that last year’s neon green mankini isn’t going to be a hit this year, frantically shopping for next day delivery swimming shorts from BooHoo. We also realise that the Factor 50 has only got about 3mm of cream left in it and has developed some odd crusty yellow substance around the nozzle, prompting an emergency trip to Boots.
Oh, and yes, we can’t forget the memes, as we’re all off on a trip to the Moon! In journalism, there is something called the ‘Silly Season’ when the political and business classes disappear for a month to the Alps or St. Tropez and journalists have to fill the same sized newspaper, so resolve to running stories about singing carp, Putin’s chest or runaway cows.
It seems that the stock market also suffers from ‘Silly Season Syndrome’ if the inexplicable performance of Hong Kong-based fintech company AMTD Digital NYSE:HKD is anything to go by. AMTD is a relative newcomer to the market, listing in New York on 15th July at USD7.80. Since then the stock has risen, to one point by 21,000% making it one of the most valuable companies in the world with a market capitalisation at its peak of USD203bn – not bad on revenues of around the USD25m it announced end-April 2021. AMTD Digital closed trading on 3rd August at USD1,100, having reached USD1,679 at one point.
AMTD doesn’t really do anything exceptional. It hasn’t discovered a cure for cancer, or developed a solution that will provide for all the world’s energy from a teaspoon of water. It primarily develops and finances digital content for social media influencers and financial services firms through its proprietary ’metaverse’ AMTD Spidernet. Pleasingly, as a business it has positioned itself to harvest revenues and fees from both sides of its customer base, but whether that justifies its valuation is debatable.
It’s a nifty little company, but not nifty enough to justify a valuation of USD203bn. It’s sister company, AMTD Idea Group has also benefited from interest in the company. It surged more than 520% on Tuesday, triggering trading halts as more and more investors piled into the stock.
Out-gaming GameStop
The story is reminiscent of the great GameStop event of 2021 – in fact it has surpassed GameStop NYSE:GME, as the American video game and electronics retailer could only manage a measly 1,700% rise during its Wall Street Bets inspired rally in 2021 – and is likely to end the same way.
Redditors on the r/wallstreetbets subreddit have to date shown bemusement at AMTD’s popularity – that hasn’t stopped the meme artists though. This bemusement is shared by the company management, who in recent days have seemed a little puzzled, if not a little embarrassed by the attention their IPO is drawing. The company has tried to keep its head down in the last few days, avoiding formal press interviews, somewhat against the modus operandi of chairman, Calvin Choi, who was a regular speaker and commentator at fintech events.
The company did issue a statement, saying “there are no material circumstances or events connected to its business that could justify such volatility”. AMTD also said it is closely monitoring any abnormalities in the stock’s trading activity.
The company’s performance has puzzled analysts. GameStop’s rally was driven by small investors collaborating to put a ‘short squeeze’ on hedge funds shorting the stock. It was more of a social, even political campaign, rather than a planned investment strategy.
Low free float
In AMTD’s case it is not as obvious, or publicly-broadcasted. Some analysts point to the fact that only a small portion of AMTD’s shares are available for trading, and the low free float in the company’s shares means it will be easier for big shareholders to push up the stock price. With so many smaller investors plugged into social media, they may have jumped onto the bandwagon, giving the shares increased momentum and the effect snowballed. An avalanche involving tonnes of ice and snow can be started by just one snowflake.
After GameStop, and other less illustrious meme stock stories such as AMC NYSE:AMC and Bed, Bath & Beyond NASDAQ:BBBY, the phenomenon is not attracting the kind of frenzy that it did a year-and-a half ago. Many professional investors are holding the view that it is, what it is.
The facts are that:
- AMTD is a Hong Kong Chinese company that has IPO-ed in a foreign country;
- The company has just over 50 employees but a valuation in the billions of dollars;
- It provides capital and technology to social media influencers and fintechs – it is no unicorn;
- It reported earnings of USD25m a fall of 17% year-on-year;
- At its height it had a p/e ratio of 13,610x;
- Annual revenue growth in 2022 fell by 4%;
- It raised USD125 in the IPO.
It is silly season time, and we’re sure that some investors are having fun with AMTD somewhere. However, we’ll all be back to work soon, and memories of a mad summer will fade with our suntans by the end of the second week in September, a likely scenario of AMTD too.
