The high valuation of Vinco Ventures (NASDAQ:BBIG) stock based on the company’s past performance, along with the lack of clarity on a social media asset that it recently acquired, makes BBIG stock too risky to buy or hold at this point.
As a result, investors should sell the company’s shares at this point.
A Very High Valuation and a Mixed Growth Record
Vinco’s 2020 revenue came in at just $15.78 million. Since BBIG stock has a market capitalization of nearly $140 million, that means it’s trading at nine times its trailing sales.
That’s a stretched multiple for a holding company that doesn’t seem to have an extremely powerful brand or any blockbuster products.
As a reference point, Square (NYSE:SQ), which has both a very strong brand name and blockbuster products, is trading at 9.8 times its trailing sales. BlackBerry (NYSE:BB) also arguably has both qualities (its brand name is actually strong among IT security professionals and automakers, and its innovative security systems for automobiles are proliferating widely). Yet BB stock has a trailing price-sales ratio of just seven.
When it comes to growth, Vinco’s performance has been mixed. As another InvestorPlace columnist, David Moadel, noted in his July 16 column, the company’s first quarter revenue rose 31% year-over-year to $2.57 million. And in 2020, Vimco’s top line came in at $15.8 million, up rom $12.5 million in 2019. But the company’s 2018 revenue was $16.5 million.
So Vinco’s growth has been uneven, and its revenue peaked in 2018. Similarly, Vinco’s operating income was slightly positive in 2016 and 2017, before falling to -$4.6 million in 2018. For 2019 and 2020, it reported operating income losses of $9.1 million and $7.9 million, respectively.
A Promising but Mystifying Merger
On July 23, Vinco disclosed that it had acquired Lomotif Private Limited, which owns Lomotif, a rival to TikTok. (For those who have not heard of TikTok, one of the latest social media platform to become explosively popular, it enables its users to easily create and share short videos).
In its press release announcing the deal, Vinco, citing a third party called Sensor Tower, stated that, “Lomotif is one of the top short form video platforms in the world with hundreds of millions of installs around the world and tens of millions of monthly users.. and over 31 million on-platform monthly active users.”
Vinco also reported that a firm called Gemini Valuation Services had estimated that Lomotif (which will now be called LoMo) was worth $5 billion.
But in February, a consortium bought an 80% stake in Lomotif for $125 million. Usually, the owners of a platform worth $5 billion don’t sell an 80% stake in it for $125 million. And it’s unlikely, to say the least, that the valuation of the platform suddenly jumped thousands of percentage points in around five months.
On the other hand, Snapchat, owned by Snap Inc (NYSE:SNAP), had 500 million monthly active users as of May 2021, and the company had a market capitalization of $120 billion as of July 29. That works out to about $240 per monthly user. The $5 billion figure assigns a value of $167 to each of LoMo’s monthly users, assuming that the 30 million figure is correct.
But, of course, LoMo’s brand is much, much weaker than that of Snapchat, and we have no idea whether and to what extent LoMo is monetizing its users. Anyone who has followed social media platforms knows that monetizing users is not always an easy, straightforward task.
The Bottom Line on BBIG Stock
Given Vinco’s lack of strong growth and its high valuation, bulls are counting on LoMo to justify the stock’s current level and provide enough revenue to pull BBIG stock higher.
But until we get independent verification of the monthly active user figure, a look at LoMo’s growth over the last year or two, and at least an idea of how much revenue LoMo is generating, it’s very difficult to determine whether the bulls’ faith is justified. And the February sale of an 85% stake in LoMo for just $125 million makes me somewhat skeptical about the platform’s performance and valuation.
On the date of publication, Larry Ramer held a long position in BB stock.