Marin Software (NASDAQ:MRIN) does not engage in deceptive advertising. But its success is deceptive. That’s why MRIN stock has become the latest meme target on Reddit.
Small traders on r/WallStreetBets target stocks that seem to have life but whose results are lacking. That’s what Gamestop (NYSE:GME), AMC Entertainment (NYSE:AMC), Clover Health (NASDAQ:CLOV), Sundial Growers (NASDAQ:SNDL) and the rest have in common.
With 10.6 million registered members, the r/WallStreetBets subreddit has the buying power of a hedge fund, but without the discipline. That also makes Marin stock perfect for manipulation. Even at $18 per share, its market cap is still just $190 million. As recently as June 23 it was $1.71.
Someone’s making money.
Marin offers a software platform for digital ad buyers. Its web site is filled with Internet buzzwords that will make you swoon. Integrate, optimize and align are just three. The home page also drops advertisers’ names, like Nissan (OTCMKTS:NSANY), Square (NASDAQ:SQ), and eHarmony. Marin has been around since 2006 and came public in 2013.
What’s wrong at Marin are the numbers. They have been going in the wrong direction for years. In 2016 sales were almost $100 million, in 2020 under $30 million. The company loses money like a dripping faucet, $14 million just last year.
What makes Marin attractive to Reddit is its short interest. Fintel recently showed 30% of the shares held short. A user calling himself Hootmoney has been posting videos on YouTube claiming over 100% is short.
As I explained back in April this game is as old as the markets. You have people pumping a stock, investors buying the hype, but eventually the bubble pops and we return to fair value, older and hopefully wiser. If you buy when the hype’s starting and sell at its peak, you can make money. If you don’t, you can get stucco.
Among the first American speculators to learn this was William Duer, assistant secretary of the Treasury under Alexander Hamilton. Duer’s collapse was a bigger (but less sexy) scandal than Maria Reynolds, so he’s not in the play (but she is).
Now that you know the game, you can play the game. I’ll watch.
It’s all about momentum, about getting other players to bet alongside you. On July 2 alone, Marin stock rose 34%. It peaked at over $24 on July 6. It’s down by about one-quarter since then.
The way to play is to stay on top of the trading action, and the Reddit thread, getting out when things turn down. You might also trade short-dated options, which can limit your downside risk to just what you invested. Selling short, which means borrowing shares with the promise to buy them back later, is the riskiest way to play because you’re borrowing and losses are, in theory, unlimited. That’s the kind of investor the Reddit people like to bet against, assuming they’re all fat hedge funds. (They’re not.)
The Bottom Line
Like I said, I’ll watch.
David Moadel hates to be “a wet blanket,” but he doesn’t see MRIN stock as worth your money. Robert Lakin notes that the price action is dominated by the “chatterati,” a term for small speculators I consider worth savoring.
If you like that action God bless you. I’ve got popcorn to pop.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.