By Mak Yuen Teen
When YuuZoo announced the deal to buy Relativity Holdings LLC on October 30, 2016, it said that the transaction has a “tremendous fit where 1 plus 1 does truly equal 10”. As it turned out, it was equal to zero as the deal was subsequently cancelled. Actually, it may turn out to be less than zero as there is an amount of US$2.5 million already paid that has not yet been recovered.
Earlier on February 16, 2015, when it announced the deal to buy IAH, it said that it was issuing 50 million shares at an issue price of $1 each, and based on the 680 million issued shares at the time, YuuZoo was valued at $680 million – even though the last traded price then was 36 cents per share, which implied a market capitalisation of about $245 million. YuuZoo seems to have a problem with maths. In fact, the deal was value destroying as YuuZoo wrote off $7.49 million on its IAH investment and receivables in its 2016 financial statements.
Just last week, on October 30, YuuZoo announced that a mobile game it is marketing, Unstoppable Rex, has an average revenue per paying user (ARPPU) of US$23 and more than 186,000 downloads. A report on pocketgamer.biz in September 2016 said that the game Pokemon GO was getting an average revenue per user (ARPU) of US$1 after surpassing US$500 million in revenue. An investor who is not careful may well infer that Unstoppable Rex is outrunning Pokemon GO in terms of revenue per user. A more important question as far as YuuZoo’s announcement is concerned is how many paying users there are and therefore over how many paying users is the ARPPU calculated. For example, it could be that the ARPPU is calculated over two paying users, one paying US$45 and another paying US$1. If that is the case, the total revenue is only US$46 and not US$4.278 million, which is the number obtained if one was to mistakenly multiply the US$23 by the 186,000 downloads. Of course, YuuZoo did not say that the two numbers can be multiplied but investors may mistakenly connect the dots. Further, as YuuZoo is only marketing the game, it is unclear how much of the revenue would go to YuuZoo. What can we make of the US$23 and the 186,000 downloads? Actually, nothing much at all.
This raises a fundamental question. Should issuers be allowed to make announcements that investors could easily mis-interpret? For example, can a retail company disclose the number of shoppers, including window shoppers, and then report average revenue per paying shopper? I guess this is a question for the regulators to mull over.
