On May 17, 2017, we commenced assessing Viva Entertainment Group Inc (OTCMKTS:OTTV), which provides an Internet protocol television (PITV) application.
Its stock chart is one of the most exciting stock charts this year.
If you remember well, the share price spiked from $0.0008 to $0.0065 when Roku Inc. (NASDAQ:ROKU), which is working with OTTV, executed an IPO.
Have a look at the recent share price reaction before we provide more information:
For those who don’t know OTTV, it sells a system, under which television transmissions are transmitted through Internet. Live television, replays of TV shows and video on demand are delivered to the users.
Have a quick look at its App:
What happened to the stock price? – Roku’s market performance after the IPO
Another very simple justification of the share price decline is the stock performance of Roku Inc. (NASDAQ:ROKU). We have noted several times in our research that OTTV noted the integration of VivaLiveTV with Roku® in July 2017.
We know that Roku® is big player in streaming video space, with 7 billion total hours streamed by the users (during the first half of 2017). Thus, the CEO obviously said that the significant revenues were expected as a result of this relationship. We agreed with him and noted that the company should be followed in combination with ROKU’s share price.
We were not wrong in saying so. After the IPO, both stock prices have moved together. Have a look at the stock performance delivered by ROKU in October:
Now, take a look again at OTTV’s stock chart. They are very similar. Are they not?
The only difference is that the share price volatility of OTTV is higher because of its different capital structure.
Let’s talk a bit about ROKU, so that we can understand OTTV’s share price. Viva Entertainment Group Inc. did not release any announcement recently, thus it seems that the slow decline in the share price is being created by ROKU.
Roku did not release any news that could push down the share price as it did. We believe that the issues came when Wall Street analysts commenced to assess whether the business model was something original. Moor Insights & Strategy’s Patrick Moorhead and other invested managers noted the following to the CNBC:
“The landscape is still very competitive and Roku’s path to profitability is unclear.”
“Amazon.com, Apple Inc. and Google Inc. offer TV streaming products that compete with our streaming players.”
“What concerns me is that the company becomes commoditized as they’re really not bringing anything unique to the table anymore in a rapidly growing market.” Source
Additionally, it has been noted that users are seeing how the company is increasing the amount of advertisements:
What’s our take?
We believe that, as it always happens after an IPO, a simple technical decline is being used to say that the business model does not work.
In our opinion, these analysts are wrong. The company has been operating since 2002, thus it seems like a mature and well tested business idea. 696 people work for the company and it has shown in the past an extraordinary growth path:
Additionally, the amount of revenues per user has been increasing for a while:
Why does OTTV react more violently to ROKU’s share price?
Have a look at the balance sheet provided by the company for the period ended April 30, 2017:
- Total assets: $0.058 million
- Total liabilities: $2.3 million
The financial risk that shareholders are facing makes the share price low and its volatility very high. ROKU has $176 million in assets and $123 million in liabilities, thus the financial risk is lower.
To sum up, OTTV operates in the same business, but it is highly leveraged. Thus, it will return higher profits and also higher losses than ROKU.
The following are the share capital stats provided by the OTC Markets:
|Authorized Shares||6,900,000,000||a/o Apr 11, 2016|
|Outstanding Shares||3,046,810,436||a/o Jul 13, 2017|
|Held at DTC||Not Available|
It does not provide the float; amount of shares owned by the public. But, we conducted more research and found out that there are big shareholders owning large stakes. Thus, the float is low, which could explain the large share price volatility.
Currently trading with a market cap of $5.4 million, OTTV is an interesting story among small caps. We continue to believe that the sector in which both ROKU and OTTV operate shows large growth. In our opinion, this is what needs to be monitored, as it will drive the share price dynamics in the future.
Additionally, the company is still in a pre-revenue stage. Thus, we need to be alert, as the first time the company delivers revenues, the share price could spike.
To sum up, monitor both ROKU and OTTV’s announcements to understand the stock chart of OTTV and remember that dips are usually good opportunities!
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Image courtesy of Riccardo Fala via Flickr
Disclosure: We have no position in OTTV or ROKU and have not been compensated for this article.