QUESTIONABLE COMPANY: Translating Intertainment's Web storyFROM THE GLOBE AND MAIL:
Intertainment Media Inc. has been the hottest stock of the year on the TSX Venture Exchange on the strength of a technology that the company says outpaces Facebook in early adoption and a celebrity endorsement from KISS founder Gene Simmons.
It's a song from another hard rock band of decades ago - Iron Maiden'sFlight of Icarus - that helps explain this stock, however. It's soared as high as it can go, and is plummeting back to earth, taking its recent investors with it.
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Intertainment started the year at just 10 cents a share, and, during frenzied trading this month, rose from 67 cents to as high as $3.35. (It closed Friday at $1.49.) Counting the company's outstanding options and warrants, Intertainment was worth more than $500-million at its peak and is still worth over $200-million today.
It's quite a valuation for a company that garners most of its roughly $5-million in annual sales from a commercial printing business. Instead, it's Intertainment's new-media division - with just $32,086 in sales in the ended Dec. 31 - that is the stoking the fires.
Specifically, it's a product called Ortsbo - Swedish for "local" - that promises instantaneous translation for nearly all the popular instant-messaging platforms. Want to IM with someone in Germany? Type your English musings into Ortsbo, and you'll be speaking the Deutsch.
Intertainment licensed the technology in July of 2010 from SaaS Technologies Inc., an Ajax, Ont.-based company that instead uses its own website to promote an entirely different software called Data Exchange Manager - and nothing about Ortsbo. SaaS referred my questions to Intertainment chief executive officer David Lucatch, who prefers to call the licence "a build-wealth program for everyone," saying his company is "a venture capital alternative" that has taken a stake in SaaS.
Since last summer's launch, Intertainment has peppered the market with news releases about the site's "unique users" and various other metrics.
Earlier this year, Intertainment upped the ante, arguing that the growth of Ortsbo was outpacing the first-year growth of Facebook. Here's what Intertainment said April 18: With "12.2 million active monthly unique visitors," Ortsbo.com had "in less than 10 months … reached the same level that it took Internet bellwether Facebook three years to achieve, outpacing usage growth at the world's largest network in less than one-third of the time."
A metric that might help evaluate the quality of the Ortsbo user base is the number of registered users - the site also allows people to provide their e-mail address in exchange for a free copy of the company's planned add-in translator to Microsoft Outlook. However, Mr. Lucatch says the company does not disclose how many of its visitors have taken the time to register.
Even if we take Intertainment at its word on unique visitor data, its own metrics raise other questions. On Monday, Intertainment said Ortsbo, since its launch, has recorded "over 183 million minutes of User Engagement, over 129 Million Page Views, approximately 40 Million Unique Users and in excess of 58 Million Online Sessions."
Do the math: That's less than five minutes of "user engagement" per unique user, and about 1.5 sessions per user - for a product that's supposed to be used with the notorious time-suck of instant messaging.
Mr. Lucatch says most websites have very small active-engagement numbers. "In Internet time, four or five minutes is significant. Most people are on and off a website in 30 seconds."
Nicholas Abe of Toronto's Alpha Macro Strategies Fund, which is shorting the stock and will profit as it falls, has a different view: "The only logical conclusion one can draw from that is that they do not have anywhere near [that number of]unique users or people are using the product very briefly and losing interest."
This is not the sense you'd get from Ortsbo's wildly cult-like Facebook page, where it now has more than 100,000 "likes" and some comments declaring "One World, One People, One Language - Ortsbo!"
Alas, while Ortsbo may be efficient at translating Czech into Chinese, Intertainment Media Inc. stock will likely be just as effective in turning your dollars into pennies.