“Either it’s a perfect storm, or else there is something going on that I don’t know about.”
So why has this unproven company – even one in the red-hot buy-now, pay-later space – soared in a market that had been expected to spurn the new IPOs?
“Without a doubt there is a lot of very hot, short-term money playing in this company and that creates risk and opportunity. I’d suggest most of the opportunity has been crystallised,” Fergie says. His fund has sold most of its holding but retains some shares.
“Just because the traders get on something and push it higher, it doesn’t necessarily mean it’s a successful business,” he says.
Emerging player
The Israeli-based company, founded in 2012, hit the boards at an interesting time: after a savage fourth quarter in global sharemarkets, and an abysmal year for local IPOs, most floats were expected to be put on ice.
But it was an emerging player in one of the market’s few hot spots: the booming buy-now, pay-later sector that had spawned success stories such as Afterpay and Zip Money.
The advisory firm that brought this stock to market and doled out these shares is the virtually unknown Armada Capital, an outfit led by Ananda Kathiravelu, and Michael Shaw-Taylor, who worked previously at Barclays and National Australia Bank.
“Everyone thought the market was closed, and now we’ve been flooded with enquiries to raise capital,” Shaw-Taylor says, noting he still thinks the IPO market is challenging and very industry-specific.
Shaw-Taylor says the firm raised capital on behalf of his client through meetings with brokers and other contacts.
Along with one-off fees associated with the capital raising and a $US10,000 ($14,100) monthly retainer, Armada Capital was given 15 million options to acquire Splitit shares within three years of the capital raising.
The options rely on the company’s share price performing, being exercisable at 150 per cent of the price of the Armada Capital raising. That equates to 30¢ a share within three years, a level Splitit has soared past. The options are escrowed for two years, Shaw-Taylor says.
“We wouldn’t rush to exercise until the two-year period is up,” says Shaw-Taylor. Armada kept most of the options but gave some to brokers as incentives for selling stock to their clients, a practice quite common at the smaller end of the sharemarket.
Fear of missing out
So, perhaps, a bit of good timing was at work, and investment FOMO – fear of missing out.
Even so, how did Splitit, which last year generated just $US789,920 revenue and posted a loss of $US4.4 million, become such a hot stock?
At a market capitalisation of $450 million, Splitit is close to surpassing Zip Co, the market darling in the instalment-pay sector, and No.2 player to Afterpay.
Zip, which this week raised $42 million, has a market capitalisation of $520 million, and in February said it had more than 1 million customers on its platform used by more than 12,500 merchants
Unlike Afterpay and Zip, Splitit does not extend financing; its customers need a credit card to use the service.
At the end of January, the company said underlying merchant transactions for the fourth quarter totalled $US31.7 million, up from $US8.6 million in the fourth quarter of 2017 when the company had just 175 active merchants.
Range of retailers
During the 2018 fourth quarter, the company said its average order value was $1050 and it had 118,000 unique shoppers, generating $423,000 in merchant fees that quarter, though fees did not always get paid in the same quarter as the transaction.
The company says its largest retailer is James Allen, an online jeweller owned by New York Stock Exchange-listed Signet Jewelers that offers customised wedding and engagement rings.
Splitit’s second-biggest retailer is Vestiaire Collective, an upmarket site for “pre-owned luxury fashion” offering a $6522 Cartier Santos 100 watch, a $4657 Chanel leather handbag and Golden Goose Superstar trainers for $272.
Neither sites display the Splitit logo at the early stages of a purchase, although Vestiaire confirmed Splitit was a payment option available for customers outside Australia.
There are all kinds of other retailers listed on the group’s website. These range from Fresh Essays – where students can buy a customised essay – to hair extension and wig sellers, to plant system Nutritower, massage chair sellers, Misthub, which sells vaping products, and Fortuan Admissions, which helps people enrol in US universities.
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