With a rapidly growing user base, and profitable business, HotCopper is due to list on the ASX later this week (15 September) after an oversubscribed float. Interestingly, this is the company’s second attempt at a public listing. HotCopper is an online stock forum where investors come to share opinions and insights into listed stocks (although there are also a range of other forum topics). The website is also sometimes used by companies themselves to promote their businesses to HotCopper members.
The company actually has a surprisingly long history, starting in 1994 as a bulletin board before moving online. Since then, the company has created its fair share of controversies. In 1997 it was realised that HotCopper posts were responsible for a significant jump in the price of an oil exploration company that found oil in the Philippines. This proved that HotCopper posts could actually affect a stock price and therefore open the door to market manipulation. Since then, posts are vetted by moderators who take down anything that is against the site rules. Some HotCopper posts have even raised the ire of company managements for defamatory and misleading comments. One such case involved HotCopper user ‘Gladman’ who was taken to court, along with HotCopper itself, by the Chairman of copper mining and exploration company CuDeco for defamation. In the end, Gladman was forced to pay $30,000 in damages to CuDeco. While this case is only one example of legal action associated with HotCopper posts, it highlighted the fact that HotCopper users can be made personally responsible for their posts and that the financial penalties can be quite substantial (from the point of view of an individual). At one point, HotCopper even started a fundraising campaign for the purpose of defending lawsuits.
The Prospectus initially issued by HotCopper for the IPO was deemed to lack sufficient detail in certain areas by the corporate regulator however they resolved these issues through the release of a supplementary prospectus. The supplementary prospectus shows that the number of registered users, as at 31 July 2016, was 248,000 but the number of unique monthly visitors to the site has been as high as 620,000. This is an increase of approximately 406,000 visits compared to January 2013. In terms of income, HotCopper has been profitable since at least 2013. The 2015 financial statements show revenue of $2.1m and profit of almost $0.6m. While the growing profitability is a good sign, the forecasts for FY2017 show an expected loss of $0.6m, mostly due to expenses related to the costs of listing. The IPO aimed to raise approximately $12m through the issue of 110m shares at $0.20 per share, most of which would be used to acquire the parent company, Report Card. HotCopper is currently owned by Report Card, but $10m of the IPO proceeds is intended to be used to pay the Vendors for the acquisition of Report Card by the newly listed company. The remaining proceeds of approximately $2m are intended to be used for product development and general working capital requirements such as IT costs, data feeds and marketing. It there’s anything that we’ve learned from recent IPO’s, such as the recent heavily oversubscribed Kogan (KGN) IPO, it’s that an oversubscribed IPO does not guarantee a stag profit upon listing. With KGN still trading below its IPO price, it highlights the unpredictability of the market. Whether or not IPO participants will realise an immediate profit is as much a function of luck as anything else. That is not to say, however, that careful analysis of the company and its prospects won’t provide a market beating edge in the long term. This article was written by William O'Loughlin - Local Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3600.
