Live Current Could Liquidate and Return Capital to Shareholders

By , May 27, 2010

As I mentioned in my article about domain investing, Live Current (ticker LIVC:OTC) hasn’t done a great job of championing the concept of building a new media company around a portfolio of “category killers”.  We recently heard via DomainNameWire that the former CEO of Live Current has filed a lawsuit against the company, further adding to their woes.

The suit claims that David Jeffs got the company to a certain point: profitable and with revenues near 9 million/year by 2008. At which point Jeffs sought out somebody to take the company “to the next level” and brought in current CEO Geoffrey Hampson to do so. At which point, instead of taking Live Current to the next level, as promised, he took the company down a few notches, destroying shareholder value and basically running the company into the ground.

The DomainNameWire article gives a good blow-by-blow of the wrongdoings alleged in the lawsuit, including Hampson’s starting up another company devoting his time and effort to it instead of Live Current; bringing in Johnathan Erlich as president and paying him a 1 million dollar signing bonus, a disastrous acquisition of Auctomatic for $5 million, and putting his  unqualified girlfriend in charge of the flagship portal. The comments thread to that article has a lot of arguments for both sides of the brewing management battle.

Without dwelling on who screwed up, without wondering why things were allowed to deteriorate so far before a lawsuit was brought, why preconditions and remedies were not in place in advance that would have allowed Hampson to be removed far earlier if indeed he really was mismanaging the company, allow me to present a Plan B to try to rescue some shareholder value.

I should point out at this point that I hold no position at Live Current, I have no particular inside knowledge and I could very well be accused of being an armchair quarterback from out here, but if I were a 5% shareholder of this company, this would be my 13-D:

Point #1: Current management needs to slam on the breaks.

The main thing would be to stop selling any more of the domain portfolio while they are still operating under the current business plan. Any money they are bringing in from those sales are just going into a vacuum.

Point #2: Abandon the idea of operating ecommerce / content businesses around the portfolio

Here again we run into the classic mistake I see domainers make all the time: confusing the map with the territory. While there are some domainers and domain companies out there who can effectively execute viable businesses on their domains, I don’t think that Live Current is one of them. They are not a perfume company, they are not a cricket company, they are not a boxing company, they are none of these things. They should stop trying to be. Right now they have one flagship domain, that is bringing in the lions share of the revenue, but the cost of those sales is nearly 80% and they can’t float the business on what’s left.

They’ve announced plans to convert from a discount portal to a full priced retail one, but I am still skeptical that this will help. Again, owning doesn’t make them a perfume retailer.

Point #3: Lease, sell and monetize the domains: Return revenues to shareholders.

So basically, they should just throw in the towel on trying to operate as a high end “destination” and just capitalize on what they’ve got: a domain portfolio.  They should just slim right down,  cut a deal with the plaintiffs in the lawsuit, the note holders and the creditors to basically strip it down to a two or three person operation who could telecommute from home offices.

  • Concentrate on liquidating the portfolio at the highest possible prices. This can be an ongoing process over a period of years. No need to rush things out at a firesale. Bring in a top tier broker partner or somebody who can come in for some shares and make it her business to find the best homes for the remaining domains at the best prices.Each transaction can be individualized to maximize shareholder value: lease deals, lease-to-buy, and outright sales, where all these revenues can be paid out to shareholders. (Without being an accountant, I wonder aloud if their previous operating losses would zero out any taxes on revenues thus derived).
  • In the meantime, monetize the rest of the domains via PPC or CPA. Bring in whatever cash they can to fund a bare-bones operation and flow through any excess back to shareholders.

If you look at the last annual report’s Statement of Cashflows, we see that the Operating Activities of the company lost $4.7 million while the Investing Activities (basically selling and leasing their domains) brought in 2.7M. In other words, Live Current is just bleeding money trying to be this ecommerce operator, but they’re raising cashflow from selling their portfolio.

If you look at their previous domain sales, they’ve done pretty good, getting $400K for, $500K for and even $1.1M for

According to DomainTools they still own over 900 domains. While I didn’t feel like spending over $1000 to find out what they were, they still own a few goodies. Let’s make any guesswork here conservative and say that not all 900 domains can fetch xxx,xxx prices. But even if you sold 20 more names at 100K each and the other 800 at 10K each, it would pencil out to $10,800,000 in sales. Distribute that out to 23 million shares out and you get roughly 47 cents a share, over 4X the current market cap of the company (and this is I think the low end of this scenario.)

So one alternative Live Current could consider is to liquidate and return capital to shareholders.

It may sound brutal, but if they can’t turn this around, this may be the more viable alternative to slowly going bankrupt and wiping out the equity holders. With a protracted management/legal battle in the offing, things look bleak for the company.

Disclosure: No position.

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