A Hot $400 Million Social Networking Stock Trading At 1,200x Sales That Is Mighty Sketchy

UPDATE: QPSA’s main promoter (non-compensated but who has been compensated for his pumping in the past and has now written 97 blog posts on QPSA in the span of a few months, which I believe means he has earned the label of “main promoter”, is out with a new article this morning on Seeking Alpha mentioning the whole “related revenues issue”, but playing it down…as is usual with former/current penny stock players (remember this CEO who admitted an SEC investigation when responding to me in a blog post…stock was later halted and crashed 99%), this promoter moron inadvertently mentioned QPSA now has 27 million shares, which gives it a near $400 million marketcap (hence the updated blog post title) with annual independent revenues of just $300,000 and millions in losses…trading at 1,200x sales, no biggie right? LOL, I am still currently short but only subscribers of my 4 newsletters will see my trades in real time…can you say BUBBLE?

Below is 1/3rd of my research report on my newest longterm pick…i’ll be officially launching my longer term newsleytter in a few weeks, but for now annual PennyStocking Silver subscribers receive it first and get 2 free months as a bonus with their subscription…(this is the last sale of the year on this product so don’t waste time)

Learn from these free video lessons on my best trade in years

As PennyStocking Silver subscribers and TIMalert subscribers know I shorted 6,000 shares of Quepasa Corporation (QPSA) at $14.60 as I wrote in the alert:

TIMalert: shorted 6k QPSA at 14.60ish, stock riding “social networking” hype, read SEC filings: 95%+ of revenues due to a director’s steel & immigration reform companies, VERY sketchy, full report coming, goal is to cover in the 11s or 12s as people realize the company is junk

As you can see from the 5-day chart, the only reason the stock has spiked roughly $2/share the past few days is due to Rev Shark’s staggeringly overly-simplistic and truly lacking fundamental research labeling it a “Latin American play on social networking with a site similar to Facebook” and interesting just about anyone who reads his column:

social networking stock

social networking stock

So please do allow me to explain because aside from my definitively short-term trade, I’m releasing this report ONLY to subscribers of my new longterm newsletter (annual PennyStocking Silver members are currently enjoying a 2 month free trial as we get the website setup for this new newsletter) because whether or not I profit, this is a definitively long-term short call based on the research below.

The company describes themselves as:

At Quepasa, we have emphasized an authentically Latino experience centered on social games, flirting and contests, targeting an 18 – 34 year old demographic. Creating a distinct user experience has been critical amid massive adoption of Facebook as an online tool for connecting and sharing among friends. In October, 2009 we launched our proprietary flirting application – Papacito & Mamacita.

Basically a social network based on games and contests for younger people…I signed up to try it out and was inundated with cheesy ads and emails before I unsubscribed within a few days…nice spammy business model, good to know! (Some Seeking Alpha commentators would have you not listen to QPSA’s own SEC filings, instead wanting you to believe they cater to an older, more affluent audience LOL)

These days it’s cool to call yourself a social network and for valuation-sake, it’s all a member numbers game…which is why QPSA has been quick to talk about how they’ve grown from roughly 7 million to 27 million users in the past year and that their current $220 million-ish marketcap is cheap compared to other social networks like Facebook.

I have a TON of issues with this kind of hype but I’ll tell you straight up despite the logic and many, many, many questionable dealings, there is a chance this stock could stay afloat or even rise more due to social media hype alone…never try to predict a hot stock’s top…just do solid research so you can be prepared if and when topping signs occur.

Now you know the risk, allow me to tell you why I am short and think this will be a good short in the coming months.

Should I start with the valuation argument that the stock has doubled in less than the past 40 days almost entirely due to Facebook and LinkedIn IPO hype? After all, it was just December 21st, 2010 when QPSA raised $13 million at $7.50/share and here we are near $15/share. (good for them, they need that cash badly as you’ll soon learn)

At first glance the financials in the SEC filings look pretty healthy, right? Booming revenues and reduced losses:

quepasa.com penny stock

quepasa.com penny stock

Ah but all is not what it seems….

The most questionable person and his questionable companies and relationships in all of this is QPSA boardmember and largest shareholder Alonso Ancira who is a bigtime Iron & Steel guy…perfect cross-marketing for a Hispanic internet company, right? QPSA’s SEC filing describes Alonso as:

Alonso Ancira has been a director since November 2006. He has served as Chairman of the Board of AHMSA, one of Mexico’s most prestigious industrial consortiums since April 2004. He is also Chairman of the Board of Mexicans & Americans Trading Together, Inc., or MATT, Inc., a wholly-owned subsidiary of AHMSA. From 1991 until April 2004, Mr. Ancira was Vice-Chairman and Chief Executive Officer of AHMSA. He is currently President of Mexico’s Chamber of Iron and Steel, a position he held from 1993 to 1995, and again from 2003 to 2004.

AHMSA is BIGTIME, its even got its own Wikipedia page, which describes the company as “the largest steel mining corporation in Mexico with installed capacity of 4.2 million metric tons of liquid steel.”

Their wholly-owned subsidiary MATT, describes themselves as “a bi national organization whose mission is to encourage Mexicans & Americans to come together to bridge the gaps of understanding and quality of life so that we may truly prosper together.”

That sounds nice right, let’s all make some liquid steel and prosper together with online games and flirting and contests, yeah!

In April 2010, Ancira, AHMSA and their company MATT controlled over 40% of QPSA:

Common Stock Alonso Ancira C/O Grupo Acerero del Norte, S.A. de C.V, Campos Eliseos No. 29, Colonia Rincon Del Bosque, Mexico (3)(7) 3,046,375 20.3%

Common Stock Mexicans & Americans Trading Together, Inc. 7550 IH 10 W, Suite 630 San Antonio, TX 78229 (13) 3,000,000 20.1%

QPSA claims to have a “revolutionary” new viral ad contest system called Quepasa DSM and “Launched in December 2009, this is a new tool that allows advertisers and brands to deliver their brand message through a viral contest engine that is shared and spread by the users across the most popular social media sites…With Quepasa DSM, brands can target Latinos across all social media properties, leveraging the user’s use of viral widgets and sharing tools to spread the brand message. In the first nine months of 2010, we signed contracts totaling $5.2 million and generated approximately $3.0 million in DSM revenue.”

That’s impressive right, $5 million in signed contracts and $3 million in just under a year?

But wait a minute, where did all that revenue come from? Another handy bullet from the same SEC filing states:

We received from Altos Hornos de Mexico, S.A.B. de C.V., or AHMSA, which owns Mexicans and Americans Trading Together, Inc., or MATT Inc., a $3.5 million contract to develop a website and a series of environmental campaigns using our DSM Technology and a $3.0 million contract to develop a website and a legislative campaign using our DSM technology. These contracts are the ones described in the first bullet point above and the next bullet point below.

What’s the next bullet point below?

Website Development – In the first nine months of 2010, we signed contracts totaling $1.3 million in website development revenue and generated approximately $1.0 million in website development revenue. We do not expect website development revenue to continue.

OK, so roughly $1 million out of $4 million is one-time only and it seems like all of the DSM revenue is due to Alonso’s companies AHMSA and MATT…I mean AHMSA, which owns Mexicans and Americans Trading Together, Inc., or MATT Inc., after all is a 20% shareholder of QPSA and is controlled by Alonso Ancira who also owns another 20% of QPSA….hmmmmm

QPSA goes on to admit: “Substantially all of our revenue has been generated from or arranged by AHMSA and MATT Inc., which are companies affiliated with Mr. Alonso Ancira, a director of Quepasa.”

Hmmmmm, I thought Quepasa DSM would be great for ALL brands not just Alonso’s steel & immigrant relations brands?

IF YOU WANT TO READ THE WHOLE REPORT, ESPECIALLY THE PART ABOUT THE TRULY QUESTIONABLE IAN CASSEL

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  • http://www.facebook.com/scibby Adrian Sciberras

    Hi Tim, I did not have time to read your post in detail but I have been following this stock for some time, I think its not undervalued, there is hype, if it has to trade par FBOOK it will go to $45+

    also your ‘friend’ iancassel is continuously pumping, and furthermore they just moved from .ob to Amex, a big move and institutions will load it just for the sake that they want to have a ‘stake’ in a social networking site like DMD, … linkedin future ipo and eventually FB.

    Finally read well the sec filings this stock has a lot of unexercised warranty, if not mistaken they have around 13m warranty which basically doubles their market cap making it more bloated.

    Disclosure – do not own any, and do not intend to trade it.
    Adrian Sciberras

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  • http://twitter.com/F_Beenz Franklin Beenz

    Sykes, you have way more pump power than Ian Cassell ever did … so no need to hyperbolically exaggerate Cassell’s role in moving QPSA from 2 to 15; that is just plain absurd. Sure the stock got ahead of itself, like all momo story stocks do, but don’t blame Cassell. If you hate him, perhaps it’s your competitive jealousy.

    “Do not sadden people of your kind (fellow human beings) through incorrect or evil speeches, but always have might over it so that you do not become bad mannered (offensive/personal).

    Consider that whatever you say always falls back on you yourselves, both in good and in evil; therefore only ever speak about the real truth ..”

  • http://twitter.com/F_Beenz Franklin Beenz

    Sykes, you have way more pump power than Ian Cassell ever did … so no need to hyperbolically exaggerate Cassell's role in moving QPSA from 2 to 15; that is just plain absurd. Sure the stock got ahead of itself, like all momo story stocks do, but don't blame Cassell. If you hate him, perhaps it's your competitive jealousy.

    “Do not sadden people of your kind (fellow human beings) through incorrect or evil speeches, but always have might over it so that you do not become bad mannered (offensive/personal).

    Consider that whatever you say always falls back on you yourselves, both in good and in evil; therefore only ever speak about the real truth ..”

  • http://www.timothysykes.com Anonymous

    i dont use promoter tactics like cassel does and no he’s not fully responsible for the runup but its absurd that he overlooked 96% of revenues are irrelevant…absurd

  • http://www.timothysykes.com Anonymous

    yup cassel is just a scumbag/incompetent researcher, excited to see him post his track record one day on http://profit.ly

  • http://twitter.com/F_Beenz Franklin Beenz

    Sykes, you have way more pump power than Ian Cassell ever did … so no need to hyperbolically exaggerate Cassell's role in moving QPSA from 2 to 15; that is just plain absurd. Sure the stock got ahead of itself, like all momo story stocks do, but don't blame Cassell. If you hate him, perhaps it's your competitive jealousy.

    “Do not sadden people of your kind (fellow human beings) through incorrect or evil speeches, but always have might over it so that you do not become bad mannered (offensive/personal).

    Consider that whatever you say always falls back on you yourselves, both in good and in evil; therefore only ever speak about the real truth ..”

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