12/21/18

Groove Focus Stock #1


SNAP Interactive (Nasdaq: STVI)
Market Cap: $42m
Price $6.50
Avg. Daily Trading Volume - 17,240
Shares Outstanding - 6.52 million
Insider Ownership - 66%
Float - 2.1 million Shares
Debt - zero*
*No debt, convertibles, warrants or toxic financing

- First publicly traded "incubator/accelerator" for blockchain start-ups

- Pending Nasdaq uplisting with all criteria satisfied as of Dec. 18

- Public float only 2.1 million shares, smallest among blockchain/crypto plays

- Crypto play from ICO deal w/ Gladius.io and more ICO partners on deck

- Launching Backchannel blockchain secured CryptoID messaging app in '18

- 179,200  current live video streaming app subscribers can already trade bitcoin for gifts and other virtual currency

Snap Interactive (STVI) is a provider of live video social networking and interactive dating applications, in addition to being the first publicly traded blockchain/crypto play in the space.  Its product portfolio includes Paltalk and Camfrog which offer a collection of video based communities, FirstMet , an interactive dating brand (formerly Are You Interested?) and the soon to be released blockchain based Backchannel secure messaging application.  Snap is also one of the first publicly traded companies to offer what we characterize as a "virtual incubator" focused on blockchain development with shared knowledge, expertise and development resources in exchange for virtual (crypto) currency placements with most favored position and pricing when these companies reach the ICO (Initial Coin Offering) stage.

STVI's core video streaming / social media operations currently serve 179,200 active subscribers who on average spend just over $10 per month for subscriptions, virtual gifts and upgrades.  This core business represents a tremendous growth opportunity, as the rise of live video is rapidly becoming a disruptive force in the social media and digital entertainment space.  STVI's proprietary live video technology is being used by hundreds of thousands of consumers daily while generating subscription and advertising revenue at an annual run rate of approximately $28m per year. 

Nearly identical comparables in terms of business model exist though they are much larger and operate primarily in China vs. STVI''s more diverse geographic footprint that includes significant revenue generated in the US, Europe and Asia. Both comparables (MOMO and YY) currently have trading prices that reflect a multiple of 4 - 4.5x revenue.  If the lower end of that revenue multiple range were applied to this business of STVI, it would result in a company value of approximately $112m. If we apply a 20% liquidity discount to reflect the fact that those companies trade on the Nasdaq while STVI is still listed on the OTCBB, we reach a valuation of approximately $89m.  With STVI's 6.5 million shares outstanding, this would put fair value of STVI shares at approximately $13.70 per share or more than 2x its current trading range. We think the stock will trend towards that valuation but may ramp quickly when investors discover that the company is likely to uplist to the Nasdaq Capital market and as of December 18, 2017 was in full compliance with all listed requirements.  
 
In addition to offering investors the opportunity to buy a stake in a rapidly growing live video streaming pure play backed by 26 patents (some licensed to Microsoft, Sony and Activision) and run by a management team with a proven track record of innovation, execution and successful acquisitions; STVI also offers investors the opportunity to get a piece of the first publicly traded blockchain play in several sectors due to the company's growing roster of blockchain development partnerships.  STVI is rapidly evolving as a blockchain incubator/accelerator with multiple partnerships in the works with blockchain startups in content delivery, storage, digital security, ad-tech, payments and gaming.  The first such partnership and Initial Coin Offering investment (on very favorable below market terms due to the development relationship) was just announced this month with Gladius (https://gladius.io/) and we believe there will be many other similar partnerships with cryptocurrency participation (ICOs) announced over the next few months as start-ups seek a "big brother" with the technical chops and experience to help them graduate to the next level. 

In addition to STVI's recent blockchain initiatives working with other blockchain startups, the company is also investing heavily in its own blockchain project Backchannel.  STVI has tremendous momentum with plans to launch its Backchannel blockchain based secure messaging app next year.  We believe that Backchannel will be the first blockchain secured messaging app, making it more private and secure than even the most secure existing apps due to its ability to allow registrations using crypto ids.    

STVI is a company that has tens of millions invested in the development, infrastructure and intellectual property (26 patents) behind its technology platform. This is recognized and embraced by industry players as evidenced by the number of startups who are engaging in two-way product development relationships with the company as they seek an experienced partner to help them succeed.  Yet the company is completely on the other end of the spectrum when it comes to gaining that kind of standing with investors.  Because the company became publicly traded only one year ago, got its start in the public markets through a reverse merger, is traded over the counter (for now), has no analyst coverage and has had no entity with a reason to tell its story, STVI has been completely overlooked by investors.  STVI has flown totally below the radar of every investor we know who looks for emerging micro cap technology plays of this kind and remains essentially an unknown for investors, but we think that is about to change.  With the company filing to up-list its shares to the Nasdaq plus its blockchain development and deals with blockchain startups, we believe that this stock will be "discovered" by investors very soon.  When that occurs, we believe that the 2.1 million share public float is going to cause the demand for shares to vastly exceed the supply of shares and cause the stock to trade significantly higher. We note that some other companies operating in the blockchain development space like RIOT Blockchain (Nasdaq: RIOT) have been considered "small float" plays on the emergence of blockchain technology.  However, RIOT Blockchain’s 6 million + share public float is 3x as large as STVI’s 2.1 million share public float, which we believe is by far the smallest public float of any publicly traded company in the blockchain space. We have watched RIOT's shares appreciate in value (RIOT’s market cap is now $372m vs. STVI’s $42m market cap) and we believe a driving factor has been both the very small supply of shares (6 million) available to the many tens of thousands of investors who are seeking to invest in the blockchain space and we think that may become one of the factors driving STVI shares higher in the weeks and months to come. 

As of this writing, the stock was still trading in the $6.50-$7.50 range which equates to a market cap of just over $40 million. We believe STVI's core business is worth at least 2x that much based on its revenue/prospects and that its cryptocurrency and blockchain initiatives could create significant additional wealth for shareholders over the long term. In the near term, we believe a move to the Nasdaq will significantly increase the liquidity and exposure for STVI and we see the company's cryptocurrency and blockchain development deals with startups attracting much more interest from investors as well and we expect that STVI shares will trade significantly higher in the very near future.