A company trying to make money from mansions full of TikTok influencers went public through an unusual deal. It's a former Chinese healthcare company, and if that sounds confusing, we can explain.
Social media entrepreneurs have rushed to search popular platforms like TikTok for ways to make money from stars. On the one hand, the West of Hudson Group operates a network of content houses in which many prominent young influencers live.
Houses like these act as management companies and draw a percentage of their income from the creators living in them. The influencers often do not pay rent, but rather produce content for brands and advertise products as a form of property rental.
Dozens of influencer homes have arrived in the Los Angeles area in the past year, and the companies that run them have been looking for sustainable business models. However, going public is a new strategy.
West of Hudson was acquired this week by Tongji Healthcare Group, a Las Vegas company that was founded by a Chinese hospital in 2006 but had no fortune in late 2019.
The deal was a reverse takeover in which a private company (in this case West of Hudson) is taken over but remains in control of an already public company (Tongji Healthcare). The deal was closed on Wednesday.
There were more maneuvers behind the scenes. Prior to the reverse merger, Tongji itself was taken over by the investors who control West of Hudson, a New Jersey real estate operator named Amir Ben-Yohanan, and its business partners.
Taken together, the combined company that applied to be renamed Clubhouse Media Group is now listed on what is known as the Pink Sheets market, which is where tiny public and often speculative companies trade. On Friday, Tongji stock closed at $ 2.30, 38 percent below its August high.
Extremely cheap stocks – so-called penny stocks – are extremely volatile. While discerning investors may oppose such a risky investment, inexperienced investors, many of whom are active on online trading platforms like Robinhood, have an appetite for them and companies that are on social media.
Influencer content houses are often about drama. Many only take a few months before internal conflicts or disputes between talent and management lead to their resolution. (In July, the New York Times reported that several content houses, including West of Hudson's, were buying on reality shows using drama as a selling point. None were sold.)
Clubhouse, the main influencer house in the West of Hudson network, was co-founded in March by Ben-Yohanan, Christian J. Young and Daisy Keech, a social media influencer. The first Beverly Hills location has expanded into a network of influencer villas including Clubhouse Next, Clubhouse for the Boys, Clubhouse Malta and Not a Content House.
However, it can be difficult to attract investors in the public markets.
For the first six months of the year, West of Hudson had sales of nearly $ 96,000 but a loss of $ 983,000. Mr. Ben-Yohanan, the company's chief executive, who controls 62 percent of the company's shares according to a recently filed securities filing, granted him a loan of just over $ 1 million. The company can pull nearly $ 4 million more from him, according to the filing. Tongji said money may need to be raised in the markets to finance operations and grow.
In an interview, Mr. Young said the company is reviewing options for raising capital in both the debt and stock markets, but declines to provide further details.
According to the Tongji File, Mr. Ben-Yohanan founded West of Hudson Properties, a New Jersey real estate company that owns or manages apartment buildings valued at over $ 300 million. He is listed as a tenant on two of the main clubhouse properties, as indicated on the filing: “While Mr. Ben-Yohanan intends to assign these leases to the company in the future, the possibility exists that Mr. Ben-Yohanan may be able to sell these leases on short notice or not cede at all. "
A call to West of Hudson Properties asking for comment from Mr. Ben-Yohanan was not returned. In addition to being the managing director, he is also the chief financial and accounting officer of Tongji.
Financial data aside, companies related to social media trends are proving to be attractive to new, young investors. Zach, a 12-year-old investor who built a following on YouTube and Twitter, is one of many young people who got into stock trading, mostly through watching YouTube videos. "There are a lot more young people in the stock market than you think," he said.
He trades stocks under his parents' name (they monitor his usage) through a UK investment platform called Trading 212. He said he needed to look at the company's financials before he could determine if it was a solid investment, but he could others see age be interested.
"Most of the kids who invest in the stock market are interested in new types of social media trends and companies like TikTok looking to invest in things like this," Zach said. A company associated with high profile social media stars is "100 percent something they would be interested in".
The trade in penny stocks has grown significantly this year. After the Covid pandemic closed the sports leagues earlier this year, many frustrated sports bettors moved to the stock markets. The shift coincided with a widespread move, originally driven by the Robinhood trading app, to lower trading fees, which further stimulated speculation in lower-priced stocks.
However, such stocks often have dire business prospects and weak management teams. And with little professional trading activity or analysis, penny stock prices are volatile and fueled by rumor and speculation in online message boards, neglecting the fundamental probability that the company will make money.
By October, according to the New York Stock Exchange, 23 percent of stocks traded on American stock markets were below $ 5. In the same period of 2019, they accounted for around 14 percent of business.