Sell #5: Sold Crowd Mobile

I’ve sold my stake in Crowd Mobile (ASX:CM8). The thesis broke. I wrote this piece prior to the half year result, so info from the half year was not factored into my sale decision.

Originally Crowd was priced at 5x-ish cash flow and I figured they’d have debt paid down in a ~year. Given the company’s initiatives I thought revenue would stay approximately flat and earnings roughly similar. Even if earnings declined somewhat I thought Crowd would still build company value at a reasonable rate (5x cash flow = 20% FCF yield) over the next few years.

Then there was a company-sponsored advertising spree where, if I recall correctly, Crowd advertised on Hotcopper and appeared in a few promotional websites with favourable coverage. The CEO and the company both retweeted my original buy thesis and shared it on LinkedIn. Shares went from 14 cents to 24 cents and I didn’t sell (a process error on my part).  Then the CEO sold a bunch of shares at 18 cents midway through 1H18 (September last year). From my perspective it looks as though the company pumped its share price.

My opinion is that by this point it would already have become apparent that Crowd’s first half results were weakening. I have put a little mental mark next to the CEO’s name as a result of that stunt.

According to the February confessional, revenue this half declined modestly (~5%) but EBITDA halved. Shares tanked. The thesis is broken and I’ve completely lost faith in Crowd after it pumped the stock and then the CEO sold shares in advance of a weak result. Also given the decline in EBITDA I suspect that a some of the revenue may be in the form of receivables, which had already started to blow out in the full year results last year.  I don’t think Crowd will get paid for all of its accrued revenue.

The company’s still priced at about 5x cash flow and arguably maybe I should have stuck with it, but I’ve lost faith and I chose to sell.

(Edit: The recent half year results confirm that Crowd’s priced at around 6x cash flow. The results don’t look that bad – maybe it’s a potential buy for someone at these levels, but I’m out and I won’t be back).

And to the two people that warned me about it – yeah, you were right.  I’m supposed to know better.

On 13/02/2018 I sold all of my 3450 Crowd Mobile shares at $0.078, receiving $254.15, or a loss of $261.05 on my purchase price. This is a loss of 50.6% of the investment, or 2.6% of capital.

I have no position in Crowd Mobile. This is a disclosure and not a recommendation.

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