MOL Global Inc (MOLG) stock is soaring on heavy volume today, ripping off gains as massive as 95% just a day after a precipitous 54% drop.
Shares of the Malaysian online payment company, alternatively called Money Online, are in rally mode after Malaysian billionaire Vincent Tan — who also happens to be MOL Global’s largest shareholder — issued a bullish statement reiterating his support for the company and attempting to assuage investor fears.
Tan, a businessman who built a portion of his wealth running a lottery, succinctly highlighted some of the recent controversies surrounding MOLG stock in his statement this morning:
“MOL has encountered some difficulties over the last several days relating to an accounting error at its Vietnam subsidiary, a delayed earnings release and trading halt, and the departure of its CFO, Allan Wong.
The timing of Allan’s departure for personal reasons which unfortunately coincided with the delay in the earnings release have resulted in some unhealthy speculation on the company’s financial numbers, and the stock price has been, in my view, unfairly punished.”
Investors seem to be buying Tan’s pep talk today. After expressing confidence in the current management team and underlying business, Tan saved his strongest argument for the last line of the statement:
“I also am very supportive of the board’s decision to implement a share buyback plan, as I believe that at the last closing price the stock is significantly undervalued.”
With respect to Tan (full name: Tan Dato’ Seri Vincent Tan Chee Yioun), he left out some crucial information that anyone remotely considering MOLG stock should know. Here are a few issues:
For one, MOL Global’s CFO just took off for no intelligible reason. Why is Tan confident in management?
If that’s not bad enough, the company — which, remember, is an online payment platform — did not anticipate a shift by consumers to mobile devices. From the report:
“On the gaming front, the softness was primarily due to a rapid shift in gaming habits whereby consumers are spending more time playing games on smartphones as compared to online.”
Claiming to be shocked by the sudden and apparently unpredictable popularity of mobile, MOLG scrambled to develop, institute, and monetize mobile gaming applications in response to this whole smartphone thing.
I bring up MOL Global’s inept handling of a trend that’s been blatantly occurring before our eyes for at least five years because MOL Global itself cited this ineptitude when it reported third-quarter results on Monday. How were third-quarter results, you ask?
They were abysmal, of course. Earnings per share fell 61.5% in the quarter, which was its first as a publicly traded company.
So if you actually believe the management of an online payment company didn’t realize people were increasingly using mobile devices, then you’re forced to accept the fact that anyone who didn’t see mobile adoption happening is horribly inept at their job. I would question any technology company that so much as hired an intern who didn’t realize smartphones were all around them.
Tan also made no mention of the two class-action lawsuits MOL Global is facing for an allegedly misleading prospectus. Admittedly, such information wouldn’t help make a very compelling bullish thesis.
And lastly, MOL Global bought Friendster in 2009. If you’ve never heard of Friendster, there’s a reason. It’s a hopelessly outdated social networking website that was already hopelessly outdated in 2009.
Bottom Line
I’ll be staying far, far away from MOLG stock — forever. The first Malaysian company to be publicly listed in the United States has lost all credibility with me after the parade of red flags we’ve seen.
MOL Global has not set a good example for future Asian companies looking to raise money in America, and at the wrong time. Nearly 75% of small-cap Asian tech stocks with at least 50,000 shares of daily volume have fallen this year, according to Finviz. The S&P 500, mind you, is up more than 10% in 2014.
On top of that, if any company has serious questions repeatedly raised about its accounting, it’s best to avoid that stock entirely. I’m reminded of China MediaExpress Holdings Inc (CCME), which soared above $20 per share in 2011 as a certain financial microblogging website featuring user-submitted content ran stories touting the company and its prospects.
However, in March 2011, the company’s auditor stepped down, and shares were de-listed by the Nasdaq a couple months later. China MediaExpress Holdings has since been deemed a fraudulent enterprise.
That’s not to say that MOL Global is a fraudulent enterprise. But when a small, foreign company is hit by accounting issues … well, that’s a pretty good sign that there are safer places to put your money.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.
