Liquid Media Group Ltd. (YVR) is a media and entertainment company that plugs mature production companies into a vertically integrated global studio, producing content for all platforms including film, TV, gaming and virtual reality. The company has gained 111.5% year-to-date.
Much of these gains have come in the past couple of weeks because investors are bullish on YVR’s potential as a non-fungible token (NFT) play. A non-fungible token is a unit of data on a digital ledger called a blockchain, where each NFT can represent a unique digital item, and thus they are not interchangeable.
On March 3, 2021, YVR announced a distribution agreement with interactive entertainment producer Atari. YVR will now have SlipStream, its video-on-demand distribution platform, on the all-new Atari VCS PC/console hybrids. And Atari recently signed a deal with Bondly for gaming NFTs. So, there is potential for YVR’s games to be turned into NFTs.
However, the stock is currently trading approximately 24% below its 52-week high of $4.37 because investors are concerned about the disconnect between its sky-high valuation and its financials. Also, the company is very dependent on external financing to fund its operating activities. Given the financial markets’ relatively edgy conditions currently, we think YVR might struggle to arrange additional financing on a timely basis.
Here are some factors which could influence YVR’s performance in the near term:
History of Operating Losses
YVR reported sales of $25,392 during the quarter ended November 30, 2020, compared to 2019 fourth-quarter sales of $1,924. However, the company has not been able to translate its top line into profitability. The company reported a loss of $1.23 million, and a loss per share of $0.12. Indeed, YVR has a history of operating losses. For the fiscal years ended November 30, 2020, 2019 and 2018, its operating losses were $8.26 million, $7.31 million and $2.38 million, respectively.
The company began generating revenue in fiscal year 2018, due to the acquisition of its majority interest in Majesco Entertainment Company. However, as of November 30, 2020, YVR no longer holds any interests in Majesco and chances are high that it will continue to incur operating losses and negative cash flows soon.
Negative Effect of the Global Pandemic
YVR does not have adequate operating revenue to finance its existing obligations and is therefore heavily reliant on external financing to meet its working capital requirements. However, the impact of COVID-19 on the financial markets has made it more difficult for YVR to secure the financing necessary to finance its existing operations and pursue potential strategic acquisitions or other opportunities to grow the business. As of November 30, 2020, the company had current assets of $1.47 million and current liabilities of $2.46 million, representing a working capital deficit of $993,625.
In February, Waterproof commenced a legal action against YVR in which it alleges that YVR misrepresented facts to Waterproof that led it to enter the Amended and Restated Shareholder Agreement (ARSA) with the company. Waterproof claims that it has the right to purchase Waterproof shareholdings from YVR at a fair market value as of May 17, 2019 in accordance with a calculation included in the ARSA. Though YVR denies this claim, it has a track record of such lawsuits. In January 2020, Jesse Sutton, the director of Majesco, filed a lawsuit in the Supreme Court of British Columbia against the company alleging various unpaid claims. On August 31, 2020, YVR settled the claim by paying an undisclosed amount to Sutton. Such lawsuits have caused instability and disruption in the normal functioning of the business.
YVR stock has gained 120% over the past six months. But the current price level of $3.30 is detached from its current fundamentals. In terms of its trailing-12-month ev/sales, the stock is currently trading at 996.02x, which is significantly higher than the industry average 2.95. Also, in terms of trailing-12-month price/sales, the stock is currently trading at 710.64x, significantly higher than the industry average 2.06x.
Our POWR Ratings Show Odds are Not in Favor
YVR has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system evaluates each stock in a total of eight different categories. YVR has an F grade for Value, Stability, and Quality, which does not justify its 69.2% price gains over the past month. In the nine-stock, F-rated Entertainment – Movies/Studios industry, it is ranked #8.
Check YVR’s POWR Ratings for Sentiment, Growth and Momentum by clicking here.
Despite the stock exhibiting strong momentum based on favorable NFT trends, we think YVR’s growth potential looks weak given its bleak financials and business uncertainty. So, YVR is best avoided for now.
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YVR shares were trading at $3.15 per share on Monday afternoon, down $0.15 (-4.55%). Year-to-date, YVR has gained 101.91%, versus a 5.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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