IPO Update: IMMRSIV Seeks $10.8M US IPO

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A quick take on IMMRSIV

IMMRSIV (IMSV) has filed proposed terms to raise $10.8 million in gross proceeds from the sale of its Class A common stock in an IPO, according to an amended registration statement.

The firm produces immersive software for a variety of consumer applications.

IMSV has made a huge loss of revenue on short sales.

Given management’s lofty valuation expectations, the firm’s small revenue and client base, and rapidly contracting revenue, I’d pass on the IPO.

IMMRSIV Overview

Singapore-based IMMRSIV was established to develop software for Augmented/Virtual Reality applications such as

• Education

• Training

• sightseeing

The management is headed by Mr. PNG B Hin, Founder, Chairman and CEO, who has been with the firm since its inception in 2008 and was earlier the Vice President of Info-Soft Systems, ST Electronics.

The company’s primary offerings include:

As of June 30, 2022, IMMRSIV has booked a fair market value investment of $2.5 million from investors including PNG Bi Hin, Siddharth Jain and Lim Yau Boon.

IMMRSIV – Customer Acquisition

The company seeks to develop business relationships through a subscription-based business model.

Management says the firm has developed e-learning courseware for over 120 schools and training institutes in Singapore.

Advertising and promotional expenses as a percentage of total revenue increased as revenue varied, as the figure below shows:

Click to enlarge

(Source – SEC)

The advertising and promotion efficiency multiplier, defined as how many dollars of additional new revenue is generated from each dollar of advertising and promotion spending, fell sharply to negative (42.9x) in the latest reporting period, as Shown in the table below:

Click to enlarge

(Source – SEC)

IMMRSIV’s market and competition

The term “metaverse” was first coined by Neal Stephenson in his science fiction novel Snow Crash.

Strictly speaking, the Metaverse is a digital universe powered by blockchain technology and home to decentralized applications.

It is a decentralized, permanent and secure online space where users can create avatars, buy virtual assets and perform tasks in the digital space.

According to Grand View Research’s 2022 market research report, the global metaverse market was an estimated $38.9 billion market in 2021 and is projected to reach $772 billion by 2030.

This represents an astonishing expected CAGR of 39.4% from 2022 to 2030.

The main drivers of this expected growth are the growing focus on using the Internet to integrate the digital and physical worlds, the development of mixed reality hardware and software, and the outbreak of the global pandemic.

As the COVID-19 pandemic disrupts traditional ways of doing business, working and socializing, there is a growing demand for digital platforms that can deliver realistic and immersive experiences.

The pandemic has also created the need for social distancing, which has led to a surge in the popularity of online games and virtual reality. [VR] As a substitute for real life social interactions.

All of this has contributed to the metaverse becoming one of the hottest trends in tech and business lately.

Furthermore, the breakdown of the global Metaverse market by end use in 2021 is as below:

Global Metaverse Market (Grand View Research)

Major competitors or other industry participants include:

• basefx

• SVHQ Media

• International Media Developers and Providers

IMMRSIV Financial Performance

The recent financial results of the company can be summarized as under:

• contracting fast topline revenue

• low gross profit but high gross margin

• A swing to operating loss

• positive cash flow from operations

The relevant financial results obtained from the registration details of the firm are given below:

Click to enlarge

(Source – SEC)

As of June 30, 2022, IMMRSIV had cash of $1.3 million and total liabilities of $2.3 million.

Free cash flow for the trailing twelve months ended June 30, 2022 was $866,106.

IMMRSIV IPO Details

IMSV intends to sell up to 2.4 million shares of Class A ordinary shares at a proposed midpoint price of $4.50 per share for gross proceeds of approximately $10.8 million including the sale of customary underwriter options.

Class A ordinary shareholders will be entitled to one vote per share and Class B shareholders will receive twenty votes per share.

The S&P 500 index no longer accepts firms with multiple classes of stock in its index.

None of the existing shareholders have shown interest in buying shares at the IPO price.

The Company is also registering for the sale of up to 1.36 million Class A ordinary shares owned by the Selling Shareholders, potentially to be offered for sale following the closing of the IPO transaction.

Assuming a successful IPO at the midpoint of the proposed price range, the enterprise value of the Company at IPO (excluding underwriter options) would be approximately $67.9 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 13.8%. Figures below 10% are generally considered to be ‘low float’ stocks which can be subject to significant price volatility.

According to the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

for the development of technology and acquisitions;

for talent acquisition;

for marketing;

For corporate loan repayment, which includes:

Government-assisted COVID-19 loan of US$427,193 of principal balance as of the date of the prospectus with an interest rate of 2.5% and a term of five years for our working capital purposes, and

an unlimited-term shareholder loan of US$327,735 with an interest rate of 5.0% for our working capital purposes;

The rest for working capital and other general corporate purposes.

(Source – SEC)

Management’s presentation of the company road show is not available.

With regard to pending legal proceedings, the Management states that the firm is not involved in any legal proceedings which could have any adverse effect on its financial position or operations.

The sole listed bookrunner of the IPO is Prime Number Capital.

Evaluation Metrics for IMMRSIV

Below is a table of relevant capitalization and valuation metrics of the firm in the IPO, excluding the effects of underwriter options:

Click to enlarge

(Source – SEC)

Comment about IMMRSIV

IMSV is seeking public capital market investment to service debt and for its general corporate working capital requirements.

The company’s financials have generated contracted topline revenue, reduced gross profit but higher gross margin, a swing to operating loss and increased cash flow from operations.

Free cash flow for the trailing twelve months ended June 30, 2022 was $866,106.

Advertising and promotional expenses as a percentage of total revenue have increased as revenue has fluctuated; Its advertising and promotion efficiency multiplier fell sharply to negative (42.9x) in the most recent reporting period.

The firm currently plans to pay no dividends and reinvest future earnings back into the business.

The market opportunity for providing metaverse and virtual reality-based training and education technologies is huge and is expected to grow substantially in the years to come, hence the firm enjoys positive industry growth dynamics in its favour.

Like other firms with operations in Asian countries seeking to tap US markets, the proposed listing entity operates as a Cayman Islands corporation with an interest in its other country operations.

US investors will only have an interest in an offshore firm or will have agreements with only operational subsidiaries (i.e., potentially no equity interest), some of which may be located in China or other Asian countries due to restrictions or unpredictability, or They may have enough operations. regulatory environment with respect to those interests.

Additionally, restrictions may exist on the transfer of funds between subsidiaries within China or other Asian countries.

Potential investors would be well advised to consider the potential effects of specific laws regarding earnings repatriation and changing or unexpected regulatory rules that may affect such companies and their US stock listings.

Additionally, post-IPO communications from management of smaller Asian companies that have become public in the US have been spotty and sloppy, indicating a lack of interest in shareholder communication, providing only the minimum required by the SEC and providing common provide an inadequate perspective. Keeping shareholders up-to-date on management’s priorities.

Prime Number Capital is the sole underwriter and IPOs led by the firm over the last 12 months period have delivered an average return of negative (31.9%) since their IPO. This is the lowest performance for all major underwriters during the period.

Risks to the company’s approach as a public company include its small size and low capitalization.

In line with valuation expectations, management is asking IPO investors to pay an enterprise value/revenue multiple of 41.6x despite a sharp decline in revenue from a smaller base.

Given management’s lofty valuation expectations, the firm’s small revenue and client base, and rapidly contracting revenue, I’d pass on the IPO.

Expected IPO Pricing Date: To be announced

Source