SeaChange International, Inc. (SEAC - Get Rating) in Acton, Mass., is a global, first-class video streaming and advertising technology provider. On Dec. 22, the company announced that it entered a definitive agreement to merge with Triller Hold Co LLC. Since then, SEAC’s shares have surged 5.1% to close Thursday’s trading session at $1.83. After completing the business combination, which is expected to close in the first quarter of 2022, SeaChange International will change its name to TrillerVerz Corp, and the ticker symbol ‘SEAC’ will be changed to ‘ILLR.’ The merged company is expected to have an enterprise value of $5 billion. Its operations will focus on advanced digital advertising, and it is expected to become a leading AI-powered social media platform for content creators.

Regarding this reverse merger, SEAC President and CEO Peter Aquino said, “The business combination with TrillerVerz represents a tremendous opportunity to invest in the future of creativity. We believe that TrillerVerz’s unmatched social media reach, Gen Z engagement, and the opportunity to meaningfully expand its global multi-platform presence across content, commerce, creators, and being at the forefront of e-commerce, ad-tech, and NFTs, including the metaverse, is a compelling investment with the potential to create significant value.”

However, it should be noted that upon completion of the merger, SEAC stockholders will own only 2.3% of TrillerVerz, while Triller Hold Co LLC shareholders will own 97.7%.

Here is what could shape SEAC’s performance in the near term:

Merger-Related Investigations

WeissLaw LLP is currently investigating whether SEAC’s board of directors violated their fiduciary duties and other laws in connection with its merger with Triller Hold Co LLC. Law firm Monteverde & Associates PC and Halper Sadeh LLP are also investigating whether this merger is fair to existing SEAC shareholders, who will retain only 2.3% of the merged company. They are investigating whether SEAC’s board of directors failed to obtain the best possible consideration for SEAC shareholders and/or failed to disclose all material information necessary for SEAC shareholders to assess and value the merger consideration adequately.

Bleak Growth Story

SEAC’s revenues have declined at a 29.6% CAGR over the past three years and at a 22.8% CAGR over the past five years. Its tangible book value and total assets have declined  at a rate of 12.7% per annum over the past three years and at a rate of 5.2% over the past five years.

In addition, the company’s trailing-12-month revenues declined 34.1% year-over-year, while its Capex fell 72.1% year-over-year. SEAC’s trailing-12-month net operating cash flow and levered free cash flow stood at negative $5.53 million and $1.95 million, respectively.

Mixed Growth Estimates

Analysts expect SEAC’s revenues to rise 36.6% in the current quarter (ending January 2022), 10% in the current year, and 31.8% next year. However, the company’s EPS is expected to remain negative until at least 2023. Furthermore,  the consensus EPS estimates indicate a 5.6% decline year-over-year next year.

POWR Ratings Reflect Uncertainty

SEAC has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 1118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Value and Quality. SEAC’s negative forward P/E multiple justifies the Value grade. In addition, SEAC’s 56.53% trailing-12-month gross profit margin is 14.4% higher than the 49.42% industry average. However, SEAC’s  net income margin and ROE are negative 43.21% and 26.12%, respectively, in sync with the Quality grade.

Of the 160 stocks in the D-rated Software – Application industry, SEAC is ranked #78.

In total, we rate SEAC on eight distinct levels. In addition to the grades I have highlighted above, you can view SEAC ratings for Growth, Momentum, Sentiment, and Stability here.

Click here to check out our Software Industry Report Bottom Line

SEAC’s scheduled merger with Triller Hold Co LLC should allow it to become a leading AI-powered social media platform and expand its global footprint. However, upon completing the business combination, SEAC shareholders will collectively retain only 2.3% of the company, thereby entitling them to a small share of the profits. Several law firms are currently investigating to determine whether SEAC’s board of directors acted in the best interest of its shareholders. Thus, we think investors should wait until these investigations yield results before investing in the stock.

How SeaChange International, Inc. (SEAC) Stack Up Against its Peers?

While SEAC has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Open Text Corporation (OTEX - Get Rating), Progress Software Corporation (PRGS - Get Rating), and National Instruments Corporation (NATI - Get Rating), which have an A (Strong Buy) rating.

SEAC shares were trading at $1.83 per share on Monday afternoon, down $0.01 (-0.27%). Year-to-date, SEAC has gained 30.71%, versus a 28.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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