Vinco Ventures (NASDAQ:BBIG) stock has caused quite a stir on social media in recent weeks, and it makes a ton of sense.
After all, Vinco is merging with a company that owns a streaming video site in the same lane as social media phenomenon TikTok.
Given the unprecedented popularity of Tiktok, Vinco’s rival service, Lomotif, seems like it could be promising.
However, a deeper look at BBIG stock reveals a lot of troubling points. For one, Vinco has had limited success as an operating entity prior to the Lomotif deal.
For another, a key figure was involved in a major stock market bust previously, and there’s limited financial information about Lomotif as well. Add it all up, and there is good reason for caution with BBIG stock right now.
A Closer Look at BBIG Stock
Vinco is a company that is merging with ZASH Global Media, which produces reality shows for syndication and for its own streaming platform. ZASH, in turn, recently acquired all of Lomotif, which will soon be named LoMo.
Lomotif sports 31 million active monthly users. In particular, it is making big moves in emerging markets such as India that potentially could have massive user growth in the coming years.
Vinco claims that a third-party valuation of the company states that ZASH/Lomotif is worth $5 billion. If that number is anywhere close to reality, BBIG stock could have considerable upside.
Streaming video is a popular category, and given all the concerns around TikTok and data privacy/security, there could be room for another competitor.
As our Mark Hake recently pointed out, it’s hard to get too comfortable with BBIG stock yet. That’s because there’s simply so much we don’t know.
It’s unclear on what basis the purported $5 billion valuation comes from, and we have minimal insight into the financial results from Lemotif/ZASH as of yet.
A user in the United States, for example, is worth far more to advertisers than one from an emerging market. Investors need more clarity into the business model and usership base to get a handle on the outlook.
Furthermore, Vinco Ventures has an uneven operating history. It used to be Idea X Lab Products. Then it changed to Xspand Products.
Later, it became Edison Nation, before transforming into its current Vinco Ventures. That’s all since 2017.
Now it is pivoting once again to this new media business with ZASH. In ZASH, Vinco also inherits an executive with an interesting track record.
The Common Ingredient: Ted Farnsworth
A big red flag with Vinco/ZASH is that Ted Farnsworth is the Co-Founder of ZASH. If you recall, he was also in charge of MoviePass, the short-lived app that gave members all the movie tickets they could use per month for less than $10/month.
The service failed quickly since it was profoundly unprofitable to give away buffet-style movie tickets at that price point.
From Farnsworth’s LinkedIn page, we see that he highlights his MoviePass experience. The profile states that: “As Chairman of MoviePass, he stood the entertainment industry on its ear as the creator of a groundbreaking theater subscription model now imitated by many. He is known in the trades as the innovator who changed the movie industry forever”.
Designing a movie subscription service that was hopelessly uneconomic may be “groundbreaking” in one sense, I guess.
However, it seems like a stretch to say MoviePass changed the industry forever. MoviePass’ parent company, Helios and Matheson, was a colossal flop. The company went bankrupt, weighed down by the huge costs of buying movie tickets for the service’s subscribers.
Meanwhile, Helios and Matheson shares fell from a reverse-split adjusted $3,000 dollars in 2018 to a price of just $0.0014 today.
Understandably, investors should be a little skeptical of funding the next big Farnsworth venture, given the results of the last one. While MoviePass may have run up blockbuster operating losses, its innovation largely stopped there. For common shareholders, MoviePass was a rotten tomato.
BBIG Stock Verdict
It’s not hard to build buzz if you spend enough money. MoviePass was a dramatic example of this. You can reach a significant user base if you’re willing to run large operating losses.
Will Vinco, via its ZASH/Lomotif deal be any more successful? It’s hard to say, as financial details are so limited at this time. However, potential investors should approach BBIG stock with a wary eye.
It’s also worth considering that another top TikTok rival, Kuaishou Technology, has seen its Hong Kong-listed shares lose more than two-thirds of their value since February. If Kuaishou, which sports more than one billion monthly users, is getting crushed, that doesn’t auger well for far smaller Lomotif.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.