Tiger Media – Addressing Concerns, Signs of Progress (IDI)

I’ve written extensively (here and here) about the unfolding turnaround story that is China small-cap Tiger Media (ticker: IDI).

This past week the story grew more interesting.

Despite a clear commitment to increased transparency including hosting quarterly conference calls the company did a number of strange things.

They released earnings results after the closing bell on a Friday afternoon, buried news that their CFO was on the way out, and made no mention of an earnings call.

It’s common knowledge that companies putting out press releases after market close on Friday are often trying to hide some bad news.

Furthermore, the departure of a CFO is rarely a good sign. In more instances than I can count a CFO departure has been followed by the disclosure of accounting irregularities – especially lately in the China public company universe.

So the optics of the Tiger Media Friday afternoon PR weren’t good.

But the more I inquire the more it’s clear that the Friday release and no conference call announcement were nothing more that a simple mistake due to extenuating circumstances. The CFO needed to start his new job the following Monday and his departure required the earlier than hoped release of results. With so much going on management chose to scrap the earnings call.

In an email message, outgoing Tiger CFO Steve Ye told me:

“It’s a career move and nothing to do with the company. The business is growing as what’s stated in the release.”

You can see that Steve accepted a CFO job at Century 21 China (ticker: CTC). It’s a well-established company with 10,000 employees and $100+ million in revenue.

Regardless of what you think about Tiger Media’s future prospects it’s difficult to fault the CFO for pursuing a bigger platform right now. (Note: Steve gave me the bull case for his new company CTC here.)

Tiger CEO Peter Tan confirmed Steve’s explanation for his departure. He apologized for the situation and promised the resumption of earnings calls beginning next quarter.

The good news out of all this is that Tiger is showing a renewed commitment to timely reporting. And while there was limited detail in the earnings release we were able to see good margins, the announcement of WiFi testing (a potential game-changer), and an agreement with the Shanghai Film Group.

The other news of late relates to the re-pricing of warrants. Clearly Tiger's warrants have been an overhang on the stock. So it’ll be good to get rid of them by the end of December. The proceeds will also obviously serve to raise some cash and give the company a cushion to fund future expansion.

Another overhang for the stock has been institutional selling. Threshold Capital’s Peter Delgado II points out that hedge fund Luxor Capital sold its entire position last quarter. There’s one other fund selling. But they don’t have many more shares to sell. So this overhang is potentially either done or close to being done.

Finally, in somewhat related news, Tiger comp Focus Media (formerly FMCN) just did a re-capitalization that drew "a blowout response from lenders". Clearly there remains good appetite for digital advertising platforms in China. That’s good news for Tiger.

Conclusion

Turnarounds take time. Investors should be patient. We all know CEO Peter Tan is incentivized to make this work.

So let’s put the Friday PR fiasco in the past where it belongs and look forward to corporate updates in the near future showing continued incremental progress.

Related:
Remember Ivax? Know Opko? U.S. Billionaire Dr. Frost Now LOVES a China Small-Cap (My Meeting with Tiger Media Management)