Moatable Inc (MTBL): a cheap software net-net
Moatable Inc mainly provides software-as-a-service services, mainly in the US. It operates two platforms: 1. Lofty for “all-in-one real estate sales acceleration, client lifecycle management platform and other nascent property management services.” and 2. Trucker Path which is a “transportation management platform”.
To write this post I had a look into the most recent quarterly report (30 September 2023), into the annual report over 2022 and into the proxy filing for the AGM on 24 May 2023. There are more useful sources to look into. Unfortunately I did not have time to dig into this company a bit deeper. As a result what follows might not be accurate, but I think it is still useful.
The numbers I use in this article are based on 0.80 USD per ADS. One ADS represents 45 shares.
The company went public in 2011. At the time it was one of the many Chinese smallcaps. Today management is still Chinese but living in the US. Most of the customers are in the US and other western countries. Moreover almost all fixed assets are in the US. Therefore I would not call it a Chinese smallcap anymore.
The company still owns two variable-interest entities in the PRC. These “subsidiaries” do not have substantial book value on their balance sheets. Furthermore they do not seem to make significant revenue and are not profitable. Instead they seem to be just cost centers. I suppose they are developing and maintaining software.
Red flags
The company has a shady past because of a derivative lawsuit: “In re Renren, Inc. Derivative Litigation, Index No. 653594/2018 (Sup. Ct. N.Y. Cty.)”. This lawsuit was settled in 2022. The company used to operate a venture capital investment company but wanted to get rid of this subsidiary. Allegedly insiders set up transactions to take ex-propriate minority shareholders from this valuable investment company, partly or completely, I do not know. See also this article/video.
At the end of 2022 the company distributed cash was distributed under shareholders: 33.617 USD per ADS for holders on 21 November 2022. I think this dividend was part of the settlement.
There are several other red flags: the company is incorporated in the Cayman Islands, the CEO and chairman are the same person, last two quarters (30 June 2023 and 30 September 2023) the company was a couple of days late filing its quarterly report, the name change from Renren Inc in May 2023 and the dual-class share structure.
Indeed there are two share classes: A-shares represented by ADSs and B-shared owned by the controlling shareholder. The B-shares have 10 votes each.
Repurchases
On 7 November 2022 the board authorized a share repurchase program for up to 10 million USD which was increased to 15 million USD on 13 October 2023. The company mainly did negotiated repurchases from Softbank. Softbank used the repurchases to close its position in the stock, for about 1.4 USD per share and 9.6 million USD in total. The last purchase from Softbank was on 29 December 2023 for 0.94 USD per share and about 2.5 million USD in total.
The company also repurchased ADSs in de open market, for 1.9 million USD in total. Because of the repurchases the CEO and executive chairman, Joseph Chen’s stake increased to about 53% of the shares and about 80% of the votes. Before the repurchases Softbank had about 48% voting control. According to the annual report over 2021 Chen’s percentage was slightly above 50% but according to the proxy filing in 2023 he had 48.7% of the votes.
Liquidation value and investments
The liquidation value of the current assets is 50 million USD after substracting 2.5 million USD for the repurchases. Included in the current assets are short-term investments. These investments are corporate bonds and treasuries. There are also valuable non-current investments such as 12.5 million USD in real estate fund Fundrise LP.
In total I estimate the value of the long term investments at 14 million USD. The liabilities are 36.2 million USD. Theremore my estimate of liquidation value = 27.8 million USD and Liquidation Value/Market cap = 2.0.
The company used to control Kaixin Auto Holdings, a Chinese manufacturer of EVs. In 2021 the company deconsolidated this subsidiary. You would think the company played the irrational EV investing sentiment well but I do not think the company sold significant amounts of Kaixin shares in the open market. Moreover it had guaranteed almost 10 million USD of loans for Kaixin which are now expected to default and it failed to sell all its shares of Kaixin in 2022 and 2023.
Substantial shareholders and related party transactions
A company from Cayman Islands Oasis Management Company Ltd led by Seth Fischer owns 98.9 million class A shares, currently worth 1.76 million USD. Taking restricted shares and employee options into account I estimate the economic ownership percentage at 12.5%. I am not sure whether Oasis owns the shares or the ADSs. The form 13G does not directly mention Oasis owns the ADSs instead of the shares.
Furthermore executive director and COO James Jian Liu (living in the PRC) owns 68.4 million shares. 31.4 million of these A-shares are represented by ADSs. I estimate his economic ownership at 8.7%.
CEO and chairman Chen got loads of options in 2013, 2014 and 2016. That was probably when he still had to share control with Softbank. In 2021 and 2022 he did not get any share options and bonuses though. Instead he only got a base salary of 201k USD and 227k USD respectively. The other two key managers were well paid. In 2022 the Vice President of Technology got a base salary of 373k USD and the COO got a base salary of 491k USD. The Vice President also got 944k USD in options. In both cases bonuses were small. Mr. Chen is not “eligible for discretionary cash bonuses”.
In the proxy filing the company mentions there were no other related party transactions exceeding 120k USD in 2022.
Summary
There are good reasons to avoid this company. One of the reasons is the behavior which resulted in the now settled derivative lawsuit. Other reasons are a bad software-as-a-service business and previous bad investment decisions.
But from November 2022 the company has shown it can also be shareholder friendly, by repurchasing many shares. The repurchases are not all positive since the existence of a large shareholder other than the controlling shareholder tends to protect other minority shareholders. With the exit of Softbank this second large shareholder is gone. Moreover I do not like that the company mainly repurchased shares from Softbank instead of in the open market. On the other hand, the company repurchased much more shares that it needed to hand firm control to Chen.
And who knows, the SaaS business could get better one day as well. While you may feel the story around this stock is awkward I think this is a good stock for a small position.
Disclosure: long Moatable Inc.
On the negative side, the company has made regular losses in the past. The operating cash flow has also been negative. However, the losses have not been particularly large. The price/book value is a very low 0.23 and the price/revenue ratio is also low. The stock is very small. A correction in the US stock market could have a negative impact. Overall, probably more of a "buy".